Hao Zhang examines how global value chain partnerships among large, monopolistic firms in the US enable new forms of political coordination and coalition-building to influence trade policy in their favor, despite popular backlash against globalization.
In early 2018, the United States initiated the trade war against China as well as its closest allies (e.g., the European Union). According to a recent review, the scope and magnitude of the proposed tariffs have surpassed all protectionist measures in the past century of U.S. trade policy. Analysis of the LobbyView database shows that Corporate America has increased its expenditure on trade lobbying to over a billion dollars since the trade war started. Trade now consistently ranks among the top four issues lobbied on Capitol Hill.
It is within this political context that we witness a salient rise of pro-trade coalitions among firms. These political coalitions are pervasive across the private sector, with concentrated benefits from trade motivating small groups of large, often monopolistic firms in almost every industry. More importantly, these coalitions are becoming more diverse, cutting across industrial boundaries. For instance, Trump’s tariff on Chinese footwear imports mobilized a wide range of non-footwear firms in the U.S. involved in the trade, including fashion designers, large retailers, logistic managers, and even software developers.
In my new working paper, “Commerce, Coalitions, and Global Value Chains,” I make one of the first efforts to track and explain these new coalitional dynamics in U.S. trade politics. Combining firm-to-firm supply chain datasets with the universe of lobbying reports (2004-2019), I present systematic evidence that U.S. firms connected with the same foreign firm through Global Value Chains (hereafter termed GVC partners) tend to coordinate their trade lobbying. One example is all of the above-mentioned non-footwear firms that rely on a Chinese footwear manufacturer, while another example is Intel and Qualcomm supplying key technologies to Chinese state-owned technology and telecommunications enterprise ZTE. The political coordination of these countless GVC partnerships serves as the microfoundation for new trade coalitions of our time.
Why GVC Partners Work Together
GVCs have important characteristics that make it easier for GVC partners to work together. To begin with, GVCs are “stretched thin,” meaning that only one or a couple of large firms operate at each production stage. These firms within the same GVC network often form a small group of repeated interactions and information sharing. Relatedly, it becomes more difficult to substitute any of these GVC partners, as they tend to make relationship-specific investments and effectively monopolize the production of each input. This applies to not only physical products such as textiles and car parts but also intangible products like designs, technologies, and consulting services. Therefore, disruptions to any production stage, from the Covid-19 pandemics to the trade war, will bring collateral damage to these interdependent GVC partners.
Furthermore, these organizational characteristics often confer distinct advantages to political coordination as well. GVC partners, especially large ones, depend on each other for important information about the “political market” as they strive to devise the most effective political strategy. Working with each other also entails pooled resources and larger representation, both of which are key to political influence. A case in point is again the U.S. footwear companies under the trade war. They have made concerted efforts to press for trade with China while bringing in even more stakeholders that rely on China’s manufacturing capabilities.
How GVC Partners Coordinate Their Political Activities
To understand how these GVC partners collaborate to influence US trade policy, I construct one of the first production network databases for all U.S. public firms and join this original database with the universe of lobbying reports on trade and tariff. Consistent with previous research, I find that large and monopolistic firms are more likely to lobby on trade issues. But more importantly, firms also start lobbying when their GVC partners lobbied in the previous year. They would also spend 25% more money on lobbying with one additional GVC partner that was politically active. If we only focus on individual firms’ political activities, we will miss important coalitional dynamics in U.S. trade politics nowadays.
Furthermore, I delve into the instances where firms lobby on the same bill and hire the same lobbyist. Typically, only a few large firms would lobby on the same bill, and they tend to know and communicate with each other. For example, the Trade Security Act in early 2019 sparked huge debates in U.S. Congress, as it tried to retain presidential authority to impose punitive tariffs on steel and aluminum imports. U.S. firms dependent on Chinese metal producers, spanning upstream designers to downstream users, have reportedly worked together to oppose this particular provision. It also holds more generally that GVC partners tend to lobby on the same trade bill, especially those related to specific products.
On the other hand, GVC partners also hire the same lobbyist to coordinate their political efforts. Firms with similar political objectives can approach the same lobbyist. For instance, there are many cases where a consortium of firms aiming to invest in “sensitive” industries (e.g., public transportation or semiconductor) turn to the same lobbyist to advocate for more favorable conditions. Lobbyists also play a proactive role in putting together coalitions to enhance political influence.
In addition to micro-level political coordination, GVC partners also mobilize larger platforms to resist the trade war. My interviews with trade associations confirm that large multinational corporations well-connected through GVCs often lead collective lobbying efforts. Needless to say, this process involves very intense inter-firm negotiations and bargaining. Statistically speaking, if more members of a given trade association are connected through GVCs, there is a higher likelihood of that trade association lobbying on trade.
What Future Holds for Trade and Globalization
Trade coalitions along the GVCs have demonstrated persistence and strength since the advent of this era of global production in 1970s. My paper shows that even prior to the trade war, these coalitions might have played a significant role in liberalizing bilateral trade between countries. The critical question now arises: will these political alliances not only endure but also resist the worldwide movements against trade and globalization in general? Based on my current data, GVC linkages between large firms have mostly remained stable despite notable political setbacks. The political pressures exerted by these coalitions on U.S. politicians have also persisted, even in the presence of ongoing punitive tariffs. The major policy impact of these coalition efforts is yet to be seen..
My paper also sheds light on the sources of the backlash against globalization. Although these new trade coalitions may appear more diverse than expected, they essentially represent collaboration among large and often monopolistic firms at each production stage. While existing research has demonstrated that trade benefits these small groups of actors, I will add that their GVC linkages significantly amplify their political power. All of these come at the expense of smaller firms excluded from such networks. Whether GVCs can become truly diverse and distribute gains from trade in a fairer manner will be critical to the future of globalization.
The author has no conflicts of interest to disclose.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
