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The Consumption Response to Trade Shocks: Evidence from the US-China Trade War

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  • Michael E. Waugh

Abstract

This paper provides evidence on the consumption effects of trade shocks by exploiting changes in US and Chinese trade policy between 2017 and 2018. The analysis uses a unique data set with the universe of new auto sales at the US county level, at a monthly frequency, and a simple difference-in-difference approach to measure the effect of changes in trade policy on county-level consumption. As a lower bound, I estimate the elasticity of consumption growth to Chinese retaliatory tariffs to be around –1. This implies that counties in the upper quartile of the retaliatory-tariff distribution experienced a 3.8 percentage point decline in consumption growth. I further show that the consumption response corresponds with a decline in employment growth. These results suggest that Chinese retaliation is leading to concentrated welfare losses in the US.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:26353
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    More about this item

    JEL classification:

    • A0 - General Economics and Teaching - - General
    • E0 - Macroeconomics and Monetary Economics - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F0 - International Economics - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F6 - International Economics - - Economic Impacts of Globalization

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