Applied Seminar

Speaker: Liang Bai (King's College Business School)

Title: Product Market Responses to the US-China Trade War (joint with Torsten Jaccard and Sebastian Stumpner)

Format:  Hybrid

Abstract: In this project, we study the product market responses to the ongoing US-China trade war, using detailed micro-data on prices, expenditures, as well as country of origin, for a wide range of final consumer goods sold in the U.S. during 2016-2020. Our empirical analysis consists of three main parts. First, we build on the work of Cavallo et al. (2021) and confirm the finding of zero tariff pass-through into store prices on average, using a widely-used dataset covering 68 retail chains during 2016-2020. Second, we study the effects of U.S. tariffs on the quantity and availability of affected products. Here, we find that despite zero price pass-through, there is significant expenditure switching, away from affected products. This result isn't driven by highly-elastic consumer demand, however, but is rather a consequence of retailers reducing the availability of targeted products. Third, we study heterogeneous effects of the tariff on products with differing market shares. Here, we find positive price pass-through and a modest decline in quantity sold for products with the highest market shares, while products with low market shares saw zero price pass-through and a sharp decline in quantity sold. These results have implications for models of firm behaviour when responding to a change in the marginal cost of international trade (e.g., Atkeson and Burstein 2010).

Organiser: Uta

For more information, please contact the organiser.