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 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.