How Did China’s WTO Entry Affect U.S. Prices?

55 Pages Posted: 21 Jun 2017

See all articles by Mary Amiti

Mary Amiti

Federal Reserve Bank of New York

Mi Dai

Beijing Normal University (BNU)

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

John Romalis

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 2018

Abstract

We analyze the effects of China’s rapid export expansion following World Trade Organization (WTO) entry on U.S. prices, exploiting cross-industry variation in trade liberalization. Lower input tariffs boosted Chinese firms’ productivity, lowered costs, and, in conjunction with reduced U.S. tariff uncertainty, expanded export participation. We find that China’s WTO entry significantly reduced variety-adjusted U.S. manufacturing price indexes between 2000 and 2006. For the Chinese components of these indexes, one-third of the beneficial impact comes from Chinese exporters lowering their prices, while two-thirds of the beneficial impact comes from the entry of new Chinese exporters. China’s WTO entry also led other countries that export to the United States to lower their prices, which was partly offset by exit of these exporters. We find that this impact on competitor countries’ prices is primarily explained by the reduction in China’s own input tariffs, so that policy action becomes the largest source of welfare gain for the United States from China’s WTO entry.

Keywords: China, trade liberalization, input tariffs, exports, variety

JEL Classification: F12, F13, F14

Suggested Citation

Amiti, Mary and Dai, Mi and Feenstra, Robert C. and Romalis, John, How Did China’s WTO Entry Affect U.S. Prices? (July 2018). FRB of NY Staff Report No. 817. Available at SSRN: https://ssrn.com/abstract=2990311

Mary Amiti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Mi Dai

Beijing Normal University (BNU) ( email )

19 Xinjiekou Outer St
Haidian District
Beijing, Guangdong 100875
China

Robert C. Feenstra

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
916-752-9240 (Phone)
916-752-9382 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John Romalis

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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