Staff Reports
How Did China’s WTO Entry Affect U.S. Prices?
Previous Title: “How Did China’s WTO Entry Benefit U.S. Consumers?”
June 2017 Number 817
Revised July 2018
JEL classification: F12, F13, F14

Authors: Mary Amiti, Mi Dai, Robert C. Feenstra, and John Romalis

We analyze the effects of China’s rapid export expansion following World Trade Organization (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 that export to the United States 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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