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Title: What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models

Author(s): Xavier Jaravel and Erick Sager

Publication Date: August 2019

Keyword(s): Markups, prices and Trade

Programme Area(s): International Trade and Regional Economics

Abstract: This paper finds that U.S. consumer prices fell substantially due to increased trade with China. With comprehensive price micro-data and two complementary identication 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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Bibliographic Reference

Jaravel, X and Sager, E. 2019. 'What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13902