DP13902 What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models
|Author(s):||Xavier Jaravel, Erick Sager|
|Publication Date:||August 2019|
|Keyword(s):||Markups, prices, Trade|
|JEL(s):||F10, F13, F14|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13902|
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.