The contractionary effects of protectionist trade policy

Abstract

We examine the firm-level effects of temporary safeguard import tariffs implemented by Ecuador in 2015–2017. The unexpected safeguards affected about one-third of imports, including intermediate inputs and final goods, creating varying exposure among firms and industries due to their unique import profiles. Using a difference-in-difference approach, we analyze immediate, short-run, and medium-run effects on importing and local non-importing firms. While importing firms experienced temporary negative effects-reduced import growth, sales, and input demand-that disappeared after the safeguards ended, local non-importing firms suffered persistent adverse impacts through their supply chains, particularly in non-import-competing industries.