High Tariffs, High Stakes

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The deployment of green technologies is essential for addressing climate change, with trade policy playing a crucial role in facilitating the diffusion of these technologies in emerging markets [7][10] - High tariffs negatively impact the import of green value chain products, particularly for undiversified firms, suggesting that emerging market governments should avoid protectionist policies [2][8] - The study highlights the importance of firm-level responses to trade policies, indicating that firms' import behavior is significantly influenced by tariffs compared to non-tariff measures [54][55] Summary by Sections Introduction - The report discusses the increasing use of trade policy to restrict imports of green technologies in high-income countries, which poses challenges for emerging markets that rely on imports for green technology access [7][8] Data - The analysis is based on novel firm-level import transaction data from 35 emerging markets covering the period 2017-2021, focusing on tariffs and non-tariff measures [21][22] Stylized Facts - The share of green products in total imports increased in most countries between 2017 and 2021, with significant variations across countries and value chains [33][34] - Tariffs on green value chain products have been consistently lower than those on other products, with a widening gap over time [38][39] Empirical Methodology - A firm-product dynamic structural gravity model is employed to analyze the impact of trade policy on firms' green technology import behavior at both intensive and extensive margins [42][43] Results - Firms' imports of green value chain products are most responsive to tariffs, with a one standard deviation decrease in tariffs associated with a 3.3% increase in imports [54] - The solar value chain shows the highest sensitivity to trade policies, with significant responses to both tariffs and non-tariff measures [55][56] - Indian firms exhibit a unique response to tariffs, increasing imports despite rising tariffs, particularly in the solar value chain [57][59]