How Did China's WTO Entry Affect U.S. Prices?

NBER Working Paper No. 23487

Issued in June 2017, Revised in December 2018

NBER Program(s):International Trade and Investment



We analyze the effects of China’s rapid export expansion following WTO entry on U.S. prices, exploiting cross-industry variation in trade liberalization. Lower input tariffs boosted Chinese firms’ productivity, lowered costs, and, in conjunction with reduced U.S. tariff uncertainty, expanded export participation. We find that China’s WTO entry significantly reduced variety-adjusted U.S. manufacturing price indexes between 2000 and 2006. For the Chinese components of these indexes, one third of the beneficial impact comes from Chinese exporters lowering their prices, while two-thirds of the beneficial impact comes from the entry of new Chinese exporters. China’s WTO entry also led other countries exporting to the U.S. to lower their prices, which was partly offset by exit of these exporters. We find that this impact on competitor countries’ prices is primarily explained by the reduction in China’s own input tariffs, so that policy action becomes the largest source of welfare gain for the United States from China’s WTO entry.

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Acknowledgments

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Document Object Identifier (DOI): 10.3386/w23487

Published: Mary Amiti & Mi Dai & Robert C. Feenstra & John Romalis, 2020. "How did China's WTO entry affect U.S. prices?," Journal of International Economics, .

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