Finance and Economics Discussion Series (FEDS)
What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models
Xavier Jaravel and Erick Sager
This paper finds that U.S. consumer prices fell substantially due to increased trade with China. With comprehensive price micro-data and two complementary identification 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.
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Keywords: China, Inequality, Markups, Prices, Trade
PDF: Full Paper