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Abstract:

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CEP Discussion Paper
What are the Price Effects of Trade? Evidence from the US and Implications for Quantitative Trade Models
Xavier Jaravel and Erick Sager August 2019
Paper No' CEPDP1642:
Full Paper (pdf)

JEL Classification: F10; F13; F14

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.