\&Quot;It's Not You, It's Me\&Quot;: Breakups in U.S.-China Trade Relationships

Abstract

Costs to switching suppliers can affect prices by discouraging buyer movements from high to low cost sellers. This paper uses confidential U.S. Customs data on U.S. importers and their Chinese exporters to investigate these costs. I find considerable barriers to supply chain adjustments: 45% of arm?s-length importers keep their partner, and one-third of switching importers remain in the same city. Guided by these regularities, I propose and structurally estimate a dynamic discrete exporter choice model. Cost estimates are large and heterogeneous across products. These costs matter for trade prices: halving switching costs reduces the U.S.- China Import Price Index by 14.7%.

Keywords: International Trade, import prices, Transactional Relationships

JEL Classification: F14, F23, L14, D21