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How did China’s WTO entry benefit U.S. prices?

Author

Listed:
  • Amiti, Mary

    (Federal Reserve Bank of New York)

  • Dai, Mi

    (Beijing Normal University Business School)

  • Feenstra, Robert C.

    (University of California, Davis)

  • Romalis, John

    (University of Sydney)

Abstract

We analyze the effects of China’s rapid export expansion following World Trade Organization (WTO) entry on U.S. prices, exploiting cross-industry variation in trade liberalization. Lower input tariffs boosted Chinese firms’ productivity, lowered costs, and, in conjunction with reduced U.S. tariff uncertainty, expanded export participation. We find that China’s WTO entry significantly reduced variety-adjusted U.S. manufacturing price indexes between 2000 and 2006. For the Chinese components of these indexes, one-third of the beneficial impact comes from Chinese exporters lowering their prices, while two-thirds of the beneficial impact comes from the entry of new Chinese exporters. China’s WTO entry also led other countries that export to the United States to lower their prices, which was partly offset by exit of these exporters. We find that this impact on competitor countries’ prices is primarily explained by the reduction in China’s own input tariffs, so that policy action becomes the largest source of welfare gain for the United States from China’s WTO entry.

Suggested Citation

  • Amiti, Mary & Dai, Mi & Feenstra, Robert C. & Romalis, John, 2017. "How did China’s WTO entry benefit U.S. prices?," Staff Reports 817, Federal Reserve Bank of New York, revised 01 Jul 2018.
  • Handle: RePEc:fip:fednsr:817
    Note: Previous Title: “How Did China’s WTO Entry Benefit U.S. Consumers?”
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    References listed on IDEAS

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    Cited by:

    1. Dmitri Kirpichev & Enrique Moral-Benito, 2018. "The costs of trade protectionism: evidence from Spanish firms and non-tariff measures," Working Papers 1814, Banco de España;Working Papers Homepage.
    2. Jaravel, Xavier & Sager, Erick, 2019. "What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models," CEPR Discussion Papers 13902, C.E.P.R. Discussion Papers.
    3. Robert C. Feenstra & Akira Sasahara, 2018. "The ‘China shock,’ exports and U.S. employment: A global input–output analysis," Review of International Economics, Wiley Blackwell, vol. 26(5), pages 1053-1083, November.

    More about this item

    Keywords

    China; trade liberalization; input tariffs; exports; variety;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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