What are the Price Effects of Trade? Trade with China increased U.S. consumer surplus by about $400,000 per displaced job, and product categories catering to low-income consumers experienced larger price declines

What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models. Xavier Jaravel, Erick Sager. Centre for Economic Policy Research, DP13902, August 2019. cepr.org/active/publications/discussion_papers/dp.php?dpno=13902

Abstract: 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.

Keyword(s): Markups, prices, Trade
JEL(s):     F10, F13, F14