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The Production Relocation and Price Effects of U.S. Trade Policy: The Case of Washing Machines

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  • Aaron B. Flaaen
  • Ali Hortaçsu
  • Felix Tintelnot

Abstract

We analyze several rounds of U.S. import restrictions against washing machines. Using retail price data, we estimate the price effect of these import restrictions by comparing the price changes of washers with those of other appliances. We find that in response to the 2018 tariffs on nearly all source countries, the price of washers rose by nearly 12 percent; the price of dryers—a complementary good not subject to tariffs—increased by an equivalent amount. Factoring in the effect of dryers and price increases by domestic brands, our estimates for the 2018 tariffs on washers imply a tariff elasticity of consumer prices of between 110 and 230 percent. The 2016 antidumping duties against China—which accounted for the overwhelming majority of U.S. imports—led to minor price movements due to subsequent production relocation to other export platform countries. Perhaps surprisingly, the 2012 antidumping duties against Korea led to relocation of production to China, actually resulting in lower washer prices in the United States. We find that our measure of the tariff elasticity of consumer prices may differ in sign and magnitude from conventional pass-through estimates which are based on a regression of country-specific import price changes on country-specific tariff changes. Production relocation effects, price changes by domestic brands, and price changes of complementary goods all contribute to the differences between these measures.

Suggested Citation

  • Aaron B. Flaaen & Ali Hortaçsu & Felix Tintelnot, 2019. "The Production Relocation and Price Effects of U.S. Trade Policy: The Case of Washing Machines," NBER Working Papers 25767, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25767
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    Cited by:

    1. Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson, 2019. "Exchange Rates and Consumer Prices: Evidence from Brexit," CESifo Working Paper Series 8001, CESifo.
    2. Pol Antràs, 2020. "De-Globalisation? Global Value Chains in the Post-COVID-19 Age," NBER Working Papers 28115, National Bureau of Economic Research, Inc.
    3. Gnutzmann-Mkrtchyan, Arevik & Hoffstadt, Martin, 2020. "Use and Abuse of Antidumping by Global Cartels," Hannover Economic Papers (HEP) dp-677, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    4. Xavier Jaravel & Erick Sager, 2019. "What are the price effects of trade? Evidence from the US and implications for quantitative trade models," CEP Discussion Papers dp1642, Centre for Economic Performance, LSE.
    5. Michael E. Waugh, 2019. "The Consumption Response to Trade Shocks: Evidence from the US-China Trade War," NBER Working Papers 26353, National Bureau of Economic Research, Inc.
    6. Blanchard, Emily & Bown, Chad P. & CHOR, HAN PING DAVIN, 2019. "Did Trump's Trade War Impact the 2018 Election?," CEPR Discussion Papers 14091, C.E.P.R. Discussion Papers.
    7. Alberto Cavallo & Gita Gopinath & Brent Neiman & Jenny Tang, 2021. "Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy," American Economic Review: Insights, American Economic Association, vol. 3(1), pages 19-34, March.
    8. Owoye, Oluwole & Onafowora, Olugbenga A., 2020. "United States-China Trade War And The Emergence Of Global Covid-19 Pandemic," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(4), pages 435-466.
    9. Arevik Gnutzmann-Mkrtchyan & Hoffstadt, 2020. "Use and Abuse of Antidumping by Global Cartels," CESifo Working Paper Series 8729, CESifo.
    10. He, Chuan & Mau, Karsten & Xu, Mingzhi, 2021. "Trade Shocks and Firms Hiring Decisions: Evidence from Vacancy Postings of Chinese Firms in the Trade War," Labour Economics, Elsevier, vol. 71(C).
    11. Carroll, Daniel R. & Hur, Sewon, 2020. "On the heterogeneous welfare gains and losses from trade," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 1-16.
    12. Facundo Albornoz & Emanuel Ornelas & Irene Brambilla, 2020. "The Impact of Tariff Hikes on Firm Exports," Asociación Argentina de Economía Política: Working Papers 4316, Asociación Argentina de Economía Política.
    13. He, Chuan & Mau, Karsten & Xu, Mingzhi, 2021. "Trade Shocks and Firms Hiring Decisions:," Research Memorandum 001, Maastricht University, Graduate School of Business and Economics (GSBE).
    14. Jason H. Grant & Shawn Arita & Charlotte Emlinger & Robert Johansson & Chaoping Xie, 2021. "Agricultural exports and retaliatory trade actions: An empirical assessment of the 2018/2019 trade conflict," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(2), pages 619-640, June.
    15. Mary Amiti & Stephen J. Redding & David E. Weinstein, 2020. "Who's Paying for the US Tariffs? A Longer-Term Perspective," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 541-546, May.
    16. Liu, Nan, 2020. "Trade war from the Chinese trenches," MPRA Paper 110175, University Library of Munich, Germany.
    17. Ma, Hong & Ning, Jingxin & Xu, Mingzhi (Jimmy), 2021. "An eye for an eye? The trade and price effects of China's retaliatory tariffs on U.S. exports," China Economic Review, Elsevier, vol. 69(C).
    18. Jie Wu & Chan‐Guk Huh & Jacob Wood, 2021. "Globally chained economies, unwitting victims of the US‐China trade war," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 35(2), pages 60-76, November.
    19. Mary Amiti & Stephen J. Redding & David E. Weinstein, 2019. "The Impact of the 2018 Tariffs on Prices and Welfare," Journal of Economic Perspectives, American Economic Association, vol. 33(4), pages 187-210, Fall.
    20. Bogusława Drelich-Skulska & Sebastian Bobowski & Jan Gola, 2021. "Global Value Chains in the Era of the COVID-19 Pandemic: Symptoms of Deglobalization," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 3), pages 905-913.
    21. Jie Wu & Jacob Wood & Xianhai Huang, 2021. "How does GVC reconstruction affect economic growth and employment? Analysis of USA–China decoupling," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 35(1), pages 67-81, May.
    22. Jaravel, Xavier & Sager, Erick, 2019. "What are the price effects of trade? Evidence from the US for quantitative trade models," LSE Research Online Documents on Economics 103402, London School of Economics and Political Science, LSE Library.
    23. Liu, Nan, 2020. "Trade war from the Chinese trenches," MPRA Paper 103929, University Library of Munich, Germany.

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    More about this item

    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
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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