| Abstract: |
China’s rapid rise in the global economy following its 2001 World Trade
Organization (WTO) entry has raised questions about its economic impact on the
rest of the world. In this paper, we focus on the U.S. market and potential
consumer benefits. We find that the China trade shock reduced the U.S.
manufacturing price index by 7.6 percent between 2000 and 2006. In principle,
this consumer welfare gain could be driven by two distinct policy changes that
occurred with WTO entry. The first, which has received much attention in the
literature, is the United States granting permanent normal trade relations
(PNTR) to China, effectively removing the threat of China facing very high
tariffs on its exports to the United States. A second, new channel we identify
is China reducing its own input tariffs. Our results show that China’s lower
input tariffs increased its imported inputs, boosting Chinese firms’
productivity and their export values and varieties. Lower input tariffs also
reduced Chinese export prices to the U.S. market. In contrast, PNTR had no
effect on Chinese productivity or export prices, but did increase Chinese
entry into the U.S. export market. We find that at least two-thirds of the
China WTO effect on the U.S. price index of manufactured goods was through
China lowering its own tariffs on intermediate inputs. |