SMU SOE Seminar (June 8, 2018): The Round Trip Effect: Endogenous Transport Costs and International Trade

Ocean containerships transport the bulk of international trade flows and travel in fixed round trip routes. This paper studies this round trip effect, which links two-way transport supply between locations. I show that this effect mitigates shocks on one-direction trade and generates opposite-direction spillovers with the same partner. Import tariff increases can therefore translate into potential export taxes. I develop an IV using this effect to estimate a containerized trade elasticity. Using this results, I estimate and simulate a counterfactual import tariffs increase. My model predicts a 0.2% export price tax when doubling US import tariffs from a 1.2% average.