The Production, Relocation, and Price Effects of US Trade Policy: The Case of Washing Machines

65 Pages Posted: 19 Apr 2019

See all articles by Ali Hortacsu

Ali Hortacsu

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Felix Tintelnot

University of Chicago Department of Economics

Aaron Flaaen

Board of Governors of the Federal Reserve System

Date Written: April 18, 2019

Abstract

We analyze several rounds of U.S. import restrictions against washing machines. Using retail price data, we estimate the price effect of these import restrictions by comparing the price changes of washers with those of other appliances. We find that in response to the 2018 tariffs on nearly all source countries, the price of washers rose by nearly 12 percent; the price of dryers—a complementary good not subject to tariffs—increased by an equivalent amount. Factoring in the effect of dryers and price increases by domestic brands, our estimates for the 2018 tariffs on washers imply a tariff elasticity of consumer prices of between 110 and 230 percent. The 2016 antidumping duties against China which accounted for the overwhelming majority of U.S. imports – led to minor price movements due to subsequent production relocation to other export platform countries. Perhaps surprisingly, the 2012 antidumping duties against Korea led to relocation of production to China, actually resulting in lower washer prices in the United States. We find that our measure of the tariff elasticity of consumer prices may differ in sign and magnitude from conventional pass-through estimates which are based on a regression of country-specific import price changes on country-specific tariff changes. Production relocation effects, price changes by domestic brands, and price changes of complementary goods all contribute to the differences between these measures.

Keywords: trade, tariffs

Suggested Citation

Hortacsu, Ali and Tintelnot, Felix and Flaaen, Aaron, The Production, Relocation, and Price Effects of US Trade Policy: The Case of Washing Machines (April 18, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-61. Available at SSRN: https://ssrn.com/abstract=3374918 or http://dx.doi.org/10.2139/ssrn.3374918

Ali Hortacsu (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-5841 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Felix Tintelnot

University of Chicago Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Aaron Flaaen

Board of Governors of the Federal Reserve System ( email )

20th and Constitution Ave., NW
Washington, DC 20551
United States
202-973-7338 (Phone)

HOME PAGE: http://www.federalreserve.gov/econresdata/aaron-b-flaaen.htm

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