Working Paper: CEPR ID: DP12076
Authors: Mary Amiti; Mi Dai; Robert Feenstra; John Romalis
Abstract: China’s rapid rise in the global economy following its 2001 WTO entry has raised questions about its economic impact on the rest of the world. In this paper, we focus on the U.S. market and potential consumer benefits. We find that the China trade shock reduced the U.S. manufacturing price index by 7.6 percent between 2000 and 2006. In principle, this consumer welfare gain could be driven by two distinct policy changes that occurred with WTO entry. The first, which has received much attention in the literature, is the U.S. granting permanent normal trade relations (PNTR) to China, effectively removing the threat of China facing very high tariffs on its exports to the U.S. A second, new channel we identify is China reducing its own input tariffs. Our results show that China's lower input tariffs increased its imported inputs, boosting Chinese firms' productivity and their export values and varieties. Lower input tariffs also reduced Chinese export prices to the U.S. market. In contrast, PNTR had no effect on Chinese productivity nor export prices, but did increase Chinese entry into the U.S. export market. We find that at least two-thirds of the China WTO effect on the U.S. price index of manufactured goods was through China lowering its own tariffs on intermediate inputs.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| PNTR granted to China (F13) | U.S. consumer prices (E31) |
| China's reduction of input tariffs (F13) | exit of less efficient competitors in U.S. market (L19) |
| China's reduction of input tariffs (F13) | productivity of Chinese firms (D22) |
| China's reduction of input tariffs (F13) | export prices to U.S. market (F14) |
| China's WTO entry (F13) | U.S. consumer prices (E31) |
| China's reduction of input tariffs (F13) | U.S. consumer prices (E31) |