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The Influence of Chinese Trade Policy on Automobile Assembly and Parts

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  • Deborah L. Swenson

Abstract

This paper analyzes the economic effects of content-based import tariffs China imposed on imported auto parts. While China's policy penalized any firm that assembled cars with less than 60% Chinese content, the policy was most likely to affect foreign-affiliated firms who were more likely to exceed the content ceiling. To assess whether foreign-affiliated firms differentially changed their input sourcing this paper uses Chinese product trade data for 1997--2009 which report trade transactions by firm ownership type. Compared with import transactions for other firms, the data show that foreign-affiliated firms appear to have mitigated the effects of the policy by reducing import transaction prices, and by reducing their import quantities on the extensive margin. While China's content-based auto import trade policy was repealed in 2009 after China lost its dispute case at the WTO, the extraordinary growth in China's global export of auto parts since 2005 suggests that China's short term trade policy may have contributed to enduring effects in global supply chains. (JEL codes: F1 and F2) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • Deborah L. Swenson, 2012. "The Influence of Chinese Trade Policy on Automobile Assembly and Parts," CESifo Economic Studies, CESifo, vol. 58(4), pages 703-730, December.
  • Handle: RePEc:oup:cesifo:v:58:y:2012:i:4:p:703-730
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    References listed on IDEAS

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    1. Raymond Fisman & Peter Moustakerski & Shang-Jin Wei, 2008. "Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 587-592, August.
    2. Swenson, Deborah L., 2001. "Tax Reforms and Evidence of Transfer Pricing," National Tax Journal, National Tax Association, vol. 54(1), pages 7-26, March.
    3. Blonigen, Bruce A., 2001. "In search of substitution between foreign production and exports," Journal of International Economics, Elsevier, vol. 53(1), pages 81-104, February.
    4. Lopez-de-Silanes, Florencio & Markusen, James R. & Rutherford, Thomas F., 1996. "Trade policy subtleties with multinational firms," European Economic Review, Elsevier, vol. 40(8), pages 1605-1627, November.
    5. Weinert, Jonathan & Ogden, Joan & Sperling, Dan & Burke, Andrew, 2008. "The future of electric two-wheelers and electric vehicles in China," Energy Policy, Elsevier, vol. 36(7), pages 2544-2555, July.
    6. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 729-761.
    7. Kitano, Taiju & Ohashi, Hiroshi, 2009. "Did US safeguards resuscitate Harley-Davidson in the 1980s?," Journal of International Economics, Elsevier, vol. 79(2), pages 186-197, November.
    8. Robert C. Feenstra, 1997. "Introduction to "The Effects of U.S. Trade Protection and Promotion Policies"," NBER Chapters,in: The Effects of U.S. Trade Protection and Promotion Policies, pages 1-7 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Jesse Mora & Nirvikar Singh, 2013. "Trade productivity upgrading, trade fragmentation, and FDI in manufacturing: The Asian development experience," Indian Growth and Development Review, Emerald Group Publishing, vol. 6(1), pages 61-87, April.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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