Tariffs and the Organization of Trade in China

48 Pages Posted: 27 Jun 2013

See all articles by Loren Brandt

Loren Brandt

University of Toronto - Department of Economics; IZA Institute of Labor Economics

Peter Morrow

University of Toronto

Date Written: June 18, 2013


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.

Keywords: China, Processing Trade, Domestic Content, Tariffs

JEL Classification: F14, F15, F16

Suggested Citation

Brandt, Loren and Morrow, Peter, Tariffs and the Organization of Trade in China (June 18, 2013). Available at SSRN: https://ssrn.com/abstract=2285628 or http://dx.doi.org/10.2139/ssrn.2285628

Loren Brandt

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
416-978-4442 (Phone)
416-978-6713 (Fax)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072

Peter Morrow (Contact Author)

University of Toronto ( email )

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