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"It's Not You, It's Me": Breakup In U.S.-China Trade Relationships

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  • Ryan Monarch

Abstract

This paper uses confidential U.S. Customs data on U.S. importers and their Chinese exporters toinvestigate the frictions from changing exporting partners. High costs from switching partners can affect the efficiency of buyer-supplier matches by impeding the movement of importers from high to lower cost exporters. I test the significance of this channel using U.S. import data, which identifies firms on both sides (U.S. and foreign) of an international trade relationship, the location of the foreign supplier, and values and quantities for the universe of U.S. import transactions. Using transactions with China from 2003-2008, I find evidence suggesting that barriers to switching exporters are considerable: 45% of arm’s-length importers maintain their partner from one year to the next, and one-third of all switching importers remain in the same city as their original partner. In addition, importers paying the highest prices are the most likely to change their exporting partner. Guided by these empirical regularities, I propose and structurally estimate a dynamic discrete choice model of exporter choice, embedded in a heterogeneous firm model of international trade. In the model, importing firms choose a future partner using information for each choice, but are subject to partner and location-specific costs if they decide to switch their current partner. Structural estimates of switching costs are large, and heterogeneous across industries. For the random sample of 50 industries I use, halving switching costs shrinks the fraction of importers remaining with their partner from 57% to 18%, and this improvement in match efficiency leads to a 12.5% decrease in the U.S.-China Import Price Index.

Suggested Citation

  • Ryan Monarch, 2014. ""It's Not You, It's Me": Breakup In U.S.-China Trade Relationships," Working Papers 14-08, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:14-08
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    Cited by:

    1. Carballo, Jeronimo & Ottaviano, Gianmarco I.P. & Volpe Martincus, Christian, 2018. "The buyer margins of firms' exports," Journal of International Economics, Elsevier, vol. 112(C), pages 33-49.
    2. Defever, Fabrice & Fischer, Christian & Suedekum, Jens, 2016. "Relational contracts and supplier turnover in the global economy," Journal of International Economics, Elsevier, vol. 103(C), pages 147-165.
    3. Egger, Peter H. & Erhardt, Katharina & Lassmann, Andrea, 2019. "Immigration and firms’ integration in international production networks," European Economic Review, Elsevier, vol. 111(C), pages 1-34.
    4. Defever, Fabrice & Fischer, Christian & Suedekum, Jens, 2017. "Supplier search and re-matching in global sourcing: theory and evidence from China," LSE Research Online Documents on Economics 86605, London School of Economics and Political Science, LSE Library.
    5. Fariha Kamal & Ryan Monarch, 2018. "Identifying foreign suppliers in U.S. import data," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 117-139, February.
    6. Aaron B. Flaaen, 2017. "The Role of Transfer Prices in Profit-Shifting by U.S. Multinational Firms : Evidence from the 2004 Homeland Investment Act," Finance and Economics Discussion Series 2017-055, Board of Governors of the Federal Reserve System (U.S.).
    7. Shibi He & Volodymyr Lugovskyy, 2018. "Domestic Spillovers and Foreign Networks in Exporting," CAEPR Working Papers 2018-005, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    8. Tim Schmidt-Eisenlohr & Ryan Monarch, 2015. "Learning and the Value of Relationships in International Trade," 2015 Meeting Papers 668, Society for Economic Dynamics.
    9. Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2514-2564, September.
    10. Adam Jakubik & Victor Stolzenburg, 2020. "Footloose Global Value Chains: How Trade Costs Make a Difference," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(2), pages 245-261, September.
    11. Andrew B. Bernard & Andreas Moxnes, 2018. "Networks and Trade," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 65-85, August.
    12. Ryan Monarch & Tim Schmidt-Eisenlohr, 2017. "Learning and the Value of Trade Relationships," International Finance Discussion Papers 1218, Board of Governors of the Federal Reserve System (U.S.).
    13. Kamal, Fariha & Sundaram, Asha, 2016. "Buyer–seller relationships in international trade: Do your neighbors matter?," Journal of International Economics, Elsevier, vol. 102(C), pages 128-140.
    14. Colin J. Hottman & Ryan Monarch, 2018. "Estimating Unequal Gains across U.S. Consumers with Supplier Trade Data," International Finance Discussion Papers 1220, Board of Governors of the Federal Reserve System (U.S.).

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    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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