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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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Defever, Fabrice & Fischer, Christian & Suedekum, Jens, 2016. "Relational contracts and supplier turnover in the global economy," Journal of International Economics, Elsevier, pages 147-165.
    2. 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, pages 2514-2564.
    3. Fariha Kamal & C.J. Krizan & Ryan Monarch, 2015. "Identifying Foreign Suppliers in U.S. Merchandise Import Transactions," Working Papers 15-11, Center for Economic Studies, U.S. Census Bureau.
    4. Tim Schmidt-Eisenlohr & Ryan Monarch, 2015. "Learning and the Value of Relationships in International Trade," 2015 Meeting Papers 668, Society for Economic Dynamics.
    5. Kara, Alper & Marques-Ibanez, David & Ongena, Steven, 2016. "Securitization and lending standards: Evidence from the European wholesale loan market," Journal of Financial Stability, Elsevier, vol. 26(C), pages 107-127.
    6. Tim Schmidt-Eisenlohr & Ryan Monarch, 2015. "Learning and the Value of Relationships in International Trade," 2015 Meeting Papers 668, Society for Economic Dynamics.
    7. Jerónimo Carballo & Gianmarco I. P. Ottaviano & Christian Volpe Martincus, 2013. "The Buyer Margins of Firms' Exports," CEP Discussion Papers dp1234, Centre for Economic Performance, LSE.
    8. Kamal, Fariha & Sundaram, Asha, 2016. "Buyer–seller relationships in international trade: Do your neighbors matter?," Journal of International Economics, Elsevier, pages 128-140.

    More about this item

    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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