The Production Relocation and Price Effects of U.S. Trade Policy: The Case of Washing Machines

65 Pages Posted: 22 Apr 2019

See all articles by Aaron Flaaen

Aaron Flaaen

Board of Governors of the Federal Reserve System

Ali Hortacsu

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

Felix Tintelnot

University of Chicago Department of Economics

Date Written: April 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.

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Suggested Citation

Flaaen, Aaron and Hortacsu, Ali and Tintelnot, Felix, The Production Relocation and Price Effects of U.S. Trade Policy: The Case of Washing Machines (April 2019). NBER Working Paper No. w25767. Available at SSRN: https://ssrn.com/abstract=3375820

Aaron Flaaen (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Ali Hortacsu

University of Chicago - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Felix Tintelnot

University of Chicago Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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