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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Xavier Jaravel and Erick Sager

8 August 2019     Paper Number CEPDP1642

Download PDF - What are the price effects of trade? Evidence from the US and implications for quantitative trade models

This CEP discussion paper is published under the centre's Trade programme.