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Tariffs and the Organization of Trade in China

Author

Listed:
  • Peter M. Morrow
  • Loren Brandt

Abstract

This paper examines the impact of China's falling import tariffs on the organization of exports between ordinary and processing trade. These trade forms differ in terms of tariff treatment and the ability of firms to sell on the domestic market. At the industry level, we find that falling input tariffs are the source of 90 percent of the average increase in the share of exports occurring through ordinary trade, most of which occurs on the extensive margin through new entry. The choice of trade is also tied to the size of the domestic market, which processing firms cannot access. Consistent with the literature, we also document that the domestic content share of ordinary exports is 30 percentage points higher than for processing. Our back of the envelope calculations imply an increase in demand for local factors of production of 12-21 billion U.S. dollars in 2006 associated with the change in the composition of trade from processing to ordinary exports resulting from tariff cuts between 2000-2006.

Suggested Citation

  • Peter M. Morrow & Loren Brandt, 2013. "Tariffs and the Organization of Trade in China," Working Papers tecipa-491, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-491
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    Citations

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    Cited by:

    1. Fabrice Defever & Alejandro Riaño, 2016. "Protectionism through Exporting: Subsidies with Export Share Requirements in China," Discussion Papers 2016-03, University of Nottingham, GEP.
    2. repec:dau:papers:123456789/13784 is not listed on IDEAS
    3. Defever, Fabrice & Riaño, Alejandro, 2017. "Subsidies with export share requirements in China," Journal of Development Economics, Elsevier, vol. 126(C), pages 33-51.
    4. José de Sousa & Laura Hering & Sandra Poncet, 2015. "Has trade openness reduced pollution in China?," Working Papers 2015-11, CEPII research center.
    5. Deborah Swenson, 2014. "Changes in the production stage position of People’s Republic of China trade," Chapters,in: Asia and Global Production Networks, chapter 6, pages 179-214 Edward Elgar Publishing.
    6. Julien Gourdon & Stéphanie Monjon & Sandra Poncet, 2014. "Incomplete VAT rebates to exporters : how do they affect China's export performance?," Working Papers 2014-05, CEPII research center.
    7. Facchini, Giovanni & Liu, Maggie Y. & Mayda, Anna Maria & Zhou, Minghai, 2018. "China's "Great Migration": The Impact of the Reduction in Trade Policy Uncertainty," IZA Discussion Papers 11279, Institute for the Study of Labor (IZA).
    8. Han, Jun & Liu, Runjuan & Ural Marchand, Beyza & Zhang, Junsen, 2016. "Market structure, imperfect tariff pass-through, and household welfare in Urban China," Journal of International Economics, Elsevier, vol. 100(C), pages 220-232.
    9. repec:bla:reviec:v:26:y:2018:i:1:p:223-256 is not listed on IDEAS
    10. Bas, Maria & Strauss-Kahn, Vanessa, 2015. "Input-trade liberalization, export prices and quality upgrading," Journal of International Economics, Elsevier, vol. 95(2), pages 250-262.
    11. Sandra Poncet & Meina Xu, 2018. "Quality screening and trade intermediaries: Evidence from China," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 223-256, February.
    12. repec:eee:inecon:v:106:y:2017:i:c:p:20-36 is not listed on IDEAS
    13. Feng, Ling & Li, Zhiyuan & Swenson, Deborah L., 2017. "Trade policy uncertainty and exports: Evidence from China's WTO accession," Journal of International Economics, Elsevier, vol. 106(C), pages 20-36.
    14. Ma, Alyson C. & Van Assche, Ari, 2014. "Vertical Specialization, Tariff Shirking, and Trade," ADB Economics Working Paper Series 390, Asian Development Bank.

    More about this item

    Keywords

    China; Processing Trade; Domestic Content; Tari s;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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