Working Paper: CEPR ID: DP13902
Authors: Xavier Jaravel; Erick Sager
Abstract: This paper fi nds that U.S. consumer prices fell substantially due to increased trade with China. With comprehensive price micro-data and two complementary identi cation strategies, we estimate that a 1pp increase in import penetration from China causes a 1.91% decline in consumer prices. This price response is driven by declining markups for domestically-produced goods, and is one order of magnitude larger than in standard trade models that abstract from strategic price-setting. The estimates imply that trade with China increased U.S. consumer surplus by about $400,000 per displaced job, and that product categories catering to low-income consumers experienced larger price declines.
Keywords: trade; prices; markups
JEL Codes: F10; F13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased trade with China (F19) | Decline in US consumer prices (E31) |
| 1 percentage point increase in import penetration from China (F69) | 2.23% decline in consumer prices (E31) |
| Declining markups for domestically produced goods (F14) | Decline in US consumer prices (E31) |
| Increased trade with China (F19) | Increased US consumer surplus (D11) |
| Increased import penetration from China (F69) | Decline in US consumer prices (E31) |