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How Did China’s WTO Entry Affect U.S. Prices?

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  • Mary Amiti
  • Mi Dai
  • Robert C. Feenstra
  • John Romalis

Abstract

We analyze the effects of China’s rapid export expansion following 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 exporting to the U.S. 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

  • Mary Amiti & Mi Dai & Robert C. Feenstra & John Romalis, 2017. "How Did China’s WTO Entry Affect U.S. Prices?," NBER Working Papers 23487, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23487
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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.
    2. Lorenzo Trimarchi, 2020. "Trade Policy and the China Syndrome," Working Papers ECARES 2020-15, ULB -- Universite Libre de Bruxelles.
    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.
    4. Liang Bai & Sebastian Stumpner, 2019. "Estimating US Consumer Gains from Chinese Imports," American Economic Review: Insights, American Economic Association, vol. 1(2), pages 209-224, September.
    5. Chen, Tao & Gao, Huasheng & Wang, Yuxi, 2021. "Tariff uncertainty and firm innovation: Evidence from the U.S.–China Permanent Normal Trade Relation," Journal of Empirical Finance, Elsevier, vol. 62(C), pages 12-27.

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    JEL classification:

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

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