Estimating US Consumer Gains from Chinese Imports

>We estimate the size of US consumer gains from Chinese imports during 2004–2015. Using barcode-level price and expenditure data, we construct inflation rates under CES preferences, and use Chinese exports to Europe as an instrument. We find significant negative effects of Chinese imports on US prices. This effect is driven by both changes in the prices of existing goods and the entry of new goods, and it is similar across consumer groups by income or region. A simple benchmarking exercise suggests that Chinese imports led to a 0.19 percentage point annual reduction in the price index for consumer tradables.

That is from AER Insights by Liang Bai and Sebastian Stumpner.  I would have expected a somewhat higher magnitude, and perhaps this in part explains why the trade war has been proceeding.

Comments

Does their estimate include the impact of low Chinese prices holding down prices domestic producers charge.

I also was surprised by their small impact and suspect this is the reason their estimate seems so small.

I suspect the real reason is that cost savings are not passed onto consumers.

The best possible outcome would be for the U.S. to end all trade with China AND to bring many of those jobs back to the U.S.

I do not think it is necessary to end all trade with Red China. America should seek a trade deal that would make sure Red China must fice back the jobs it stole.

I am perfectly happy with low priced Chinese imports raising my standard of living. Why should it be any skin off my nose that some poor uneducated guy loses his high paying factory job?

Given free speech you are free to say exactly that. But when the come for your job don't look for support from those you have tossed aside.

But the greater point is that our country should stand behind it's citizens. I don't really care that you as a citizen don't give a shit, it means nothing. But the country and our government has a responsibility to our citizens and zero responsibility to foreign countries and companies.

For the record I am also very happy with imports. I do think it is a great opportunity for the federal government to shift funding from income taxes to tariffs. They should put a tariff on all imports that would compensate for the lost income taxes of American workers not making the products, the costs of unemployment, SS payments, welfare and other associated costs to America for cheap products. At the least it should be 100%. That is your trinket made in China that now costs $1.00 should cost $2.00. A $900.00 cell phone made in China should cost $1800.00. Just to pay for all the externalities and other costs of offshoring American jobs.

It's wonderful that yoս are getting thⲟughts from this article as wеll aѕ frоm our argument mde here.

This what Tyler reaps, flirting with "inner genius" theories of this trade war.

"end all trade with China"

Why not. Our glorious leader has said it.

The logical conclusion of the populist economics is that we ban China, then Vietnam for relabeled goods, then Taiwan for too much mainland content ..

Not your father's free market economics.

Why not indeed? China is not our friend. Everything they have done and everything they will do in the future is designed to cause us harm. We don't 'need' China. If American companies must have slave labor to make their products there are plenty of other countries who would welcome it. But I would prefer we bring most of the jobs home.

My question was, if you stop trading with China, and Vietnam and Taiwan keep sourcing from China, what do you do?

I'm sorry, but the question seems to be a really sloppy straw man.

The theory would be that if China doesn't reform, some barrier are but in place that in effect shift some of the trade that the US does to competing countries.

Vietnam's trade with the US would grow substantially and it would be a beneficiary. Taiwan, Thailand, Indonesia, Mexico and the US itself would be as well.

Te relabelling of goods issue appears to eb a tiny, temporary one that was reported by Vietnam. It can be handled by tracing down on relabelled goods.

The question has a faulty premise, and does not need to be answered as constructed.

If I misunderstood and your question was a better one, please let me know.

You got it, but I think that answer is ridiculous.

If you are putting inspectors inside Vietnam to trace the sources of material, you have lost. And you have sure left free markets far behind.

But more than that, what was actually special about China? Was it really "unfair trade deals?"

Or was it aggressive development by a poor country?

If the problem is aggressive development by a poor country you have to shut down India and Indonesia now as trading partners. Wages and environmental standards are low there too.

If you buy the Trumpian logic that hard work by poor countries with a low labor cost is bad, there's no way you can stop at a China trade ban.

.19% seems amazingly low, but not everyone shops banggood, and certainly not for a huge fraction of monthly outlays.

Does that price index include rent? Education? Health care?

In related news, I heard that landlords have captured more than 100% of productivity increases in large US cities, in the same timeframe. Can't find that link now.

Ah, maybe this one:

https://www.ft.com/content/7c2aa8f2-7b07-11e9-81d2-f785092ab560

“Does that price index include rent? Education? Health care?”

Chinese imports led to a 0.19 percentage point annual reduction in the price index for consumer tradeables.

No.

I missed that bit.

Thiel agrees.

https://finance.yahoo.com/news/peter-thiel-vast-majority-capital-give-companies-just-going-landlords-134709786.html

It is rational no matter what for American companies to diversify their supply chain to friendlier countries such as Taiwan, Vietnam or the Philippines even at a slightly higher cost as well as moving more production back to the US. When one factors into this the negative externalities of Chinese expansionism and spying, the relatively modest trade war we see in practice doesn't seem so senseless. Plus there is the problem that China is just producing the dirty products the West made less of due to higher regulations or green policies.

"It is rational no matter what for American companies to diversify their supply chain to friendlier countries such as Taiwan, Vietnam or the Philippines even at a slightly higher cost as well as moving more production back to the US."

Well, they do not think so. They are pretty happy to sell their country out.

Does 0.19 %/ year over 11 years mean 1.0019^11 -1 = 2% reduction over 11 years. This doesn’t sound like nothing it sounds somewhat valuable.

Yeah, it means we gained about one year's worth of standard of living increase at the expense of nuking the Chinese environment, emboldening a genocidal power to undertake the largest ethnic cleansing in decades (and let's not forget forced sterilization, executions-for-organs, and enabling the North Korean nuclear program), disrupting the careers of millions of blue collar employees, and hollowing out a large number of towns.

Frankly, if this is the true figure we easily lost more wealth on the other side from the reduced value of capital in industrial towns.

In my line of work, the NICE estimates that preventing depression is worth around $7500 per year of depression averted. Job loss double depression rates. If we look solely at the popular figure of 2 million jobs lost to Chinese manufacturing, that suggest we created 140,000 new cases of depression. Say average life expectancy for these displaced workers is a nice round 30 years. Well for just the effects on the workers directly - not their spouses, children, or communities - we are looking at around $32 billion. Nor will this be the only increased medical cost (and undoubtedly prices will be higher in the US for treatment).

Frankly, I doubt the number, but if this is true, letting China normalize trade with the US without normalizing its business practices to western norms is perhaps the largest swindle in American history. We gutted the health, wealth, and community of many to pay for 2% GDP growth?

You could argue that Chinese citizens are better off with a sweatshop economy enabling their rise to the global middle class, but this does suggest that the trade setup was utterly dominated by China and certainly should not continue as they have risen out of poverty.

And this is what I will never understand about "free traders" and China. China has been blatantly stealing IP for decades. We were supposed to see massive gains from comparative advantage ... if this is all that shows up in the bottom line I suspect Trump's tariffs will be neither all that harmful in the long run nor the last a president enacts on China.

We gutted the health, wealth, and community of many to pay for 2% GDP growth?

No. Not for 2% GDP growth, for high portfolio returns for investors long companies exposed to china. We sold out our manufacturing sector for the benefit of Walmart, Yum brands, Nike, and Coca-Cola.

... would someone kindly translate that stuffy jargon into plain English ?

Are Americans better off with or without Chinese imports ?

Yes, we’ve received a lot of good cheap stuff with severe environmental externalities and a lot of awful shoddy flimsy crap. In exchanged we’ve hollowed out some of our industrial and manufacturing sectors, which not only provided jobs but also skills.

I’m in History not Econ so I’m happy to be corrected.

Exactly.

By "severe environmental externalities" you probably mean that China doesn't have the same regulations in regard to power production and resource extraction that the US does. In other words, the Chinese are supposed to follow US environmental laws.

"Shoddy flimsy crap" is just what's needed for a single or seldom use. A cheap Chinese power tool is great for a once in a blue moon project. If you're going to use one every day it makes more sense to buy a high-quality product, probably of German manufacture.

Ultimately, in a free society, the consumer makes the decisions. If he's free, he can buy from whoever he chooses.

Yes Chuck.

Btw. Bought a great Honda motor driven tool. Used it ten years and then abused it at cottage. Had friend replace $800 Honda motor with a $300 Chinese knock-off. It was almost identical. They out and out stole the Honda design. Just copied it.

Geez, how much different are the small 4-cycle engines of various manufacturers that power lawn mowers, garden tillers, etc? When tools are developed to perform certain specific functions how much different can they be? Aren't all household toasters and blenders very much alike? Doesn't function determine much of form?

You mean that China does not have the same environmental regulations that the U.S. currently has rather than the regs that the U.S. had 50-150 years ago when it was industrializing. And technology has been a more significant factor than trade in affecting U.S. manufacturing jobs.

From Wilfred Beckerman via Don Boudreaux:

"[E]nvironmental preservation is often used as an excuse for protectionist pressures that will further impoverish poorer developing countries. Similarly, policies to enforce drastic reductions in carbon emissions in order to reduce climate change and to respect the exigencies of the precautionary principle will also hit developing countries particularly heavily. All these policies that are advocated in the name of sustainable development represent, in the end, a new form of imperialism: an attempt to control markets for the benefit of the producers of Western industry and an attempt to impose the preferences of affluent groups in rich countries on other countries whether they like it or not."

They are saying that when you look at median consumption, including rent(*), lower prices on Chinese good has limited impact.

* - I don't have access, but I think that's a fair guess

You're wrong (as usual). It covers traded goods only and they regard the gains from lower prices as significant:

"While previous research has highlighted the negative labor market consequences due to import competition, our results suggest substantial gains to US consumers from the recent growth in trade with China. These ought to be taken into account in both the debate around, and the design of, US trade policy."

It's a fair cop this time, but the "as usual" is pretty tacky.

Trump is a genius everyone, and a saint, and maybe even the second coming of God, because I've been proven wrong "as usual."

Even worse, you never miss an opportunity to express TDS.

Well, that's where you were headed, and now confirmed.

Any criticism of Trump is still TDS, no matter what he gets up to.

True, not every criticism of Trump is TDS. However, it seems it's also true that you do have it.

> Yes, we’ve received a lot of good cheap stuff with severe environmental externalities and a lot of awful shoddy flimsy crap.

Yes, you will receive a lot of good (?) not so cheap stuff with even more severe environmental externalities and a lot of even more awful shoddy flimsy crap. If they are better why don't they be imported earlier?

Say the Chinese factory makes the product with cost X. By shifting his factory to Vietnam he produces the same product with cost 1.10X but exports that to US for 1.149X + profit just below the tariffed product directly from China. The Chinese factory owners laughing all the way to the banks for getting extra 0.049X profit from nowhere while the Chinese factory workers are laid off. The US consumers are paying for the higher tariffed prices for the same products.

Or the game of switcheroo. Japan only imports kimchi from Korea.

https://qz.com/1183632/the-kimchi-you-eat-outside-of-korea-is-probably-made-in-china/

As of 2016, the (Korean) kimchi average export price was $3.36 per kilogram (2.2 lbs) compared with the Chinese $0.5 per kilo import price, according to the Agro-Fisheries & Food Trade Corporation, a Seoul-based multinational exporting group. So Koreans export their local made kimchi to Japan and consume the cheap kimchi from China. The Koreans are laughing all the way to the banks.

> a lot of awful shoddy flimsy crap

Because that is all the cheapskate US consumers are willing to pay. If you are willing to pay more you will get quality. Iphone is manufactured in China. Is the iphone a flimsy crap product??

> severe externalities

https://theconversation.com/five-years-after-deadly-factory-fire-bangladeshs-garment-workers-are-still-vulnerable-88027

"Exactly five years ago, in November 2012, a fire in the Tazreen Fashions factory in Bangladesh killed at least 112 workers. ... Just five months later, the collapse of the Rana Plaza building killed 1,134 garment workers and injured hundreds of survivors. ... But five years on, not enough is being done to protect garment workers, and these new initiatives haven’t gone far enough to address the multiple attacks on workers’ everyday health and well-being."

The grass is not always greener on the other side.

i strongly suspect that no one commenting as of this time has read the article, because the link specified goes to the wrong article (it’s currently directed to the article on India and stock market gains from a few posts back).

I note that this doesn’t stop them crowing that it handily proves the substance of their ideologies.

Exactly.

Hey I tried, stopped at a login screen.

Speak for yourself, you lazy plebians.

"We employ two main datasets: i) international trade flows from UN Comtrade at the HS 6-digit level, obtained from CEPII (Gaulier and Signago (2010)), and ii) household purchases and product prices from AC Nielsen’s Homescan Panel at the barcode level. It comes from a sample of around 60,000 US households who continually provide information about their demographic characteristics and product purchases. Information on product purchases include price and expenditure at the level of individual barcodes and are reported by households using a handheld scanner. For our study period, we observe over 1.5 million barcodes, grouped by Nielsen into 1,147 product modules.5There are numerous advantages to using this data in our context. First, defining a product at a very fine level is important for distinguishing price changes of the same product from changes in product composition. It also allows us to hold within-product quality constant, since quality of the same barcoded good should not change over time (product updates usually result in a new barcode). Second, we can observe effective prices paid by households, rather than retailers’ posted prices. This is important as households may change retailers to benefit from lower prices. Third, observing a larger share of household purchases for our set of categories (instead of a smaller sample of prices) helps in estimating the importance of variety gains. Finally, linking purchases to household characteristics gives us an opportunity to study heterogeneous effects across income groups and regions."

"With the values for̂∆log(DSEi)^Chn in hand, we then use the expressions above to compute the aggregate change in the price index for consumer tradables. Doing so, we find a decline in the ideal price index of 2.1 ppts for the period 2004-2015, or 0.19 ppts per year."

What if it is an American firm with facilities in the US importing what it has produced at a plant in China. That would count as a Chinese import, and it would not be surprising if the US parent didn't reduce prices..

What would be interesting would be Chinese firms exporting to the US, not including those owned by US firms with facilities in the US.

Notice that it was the entry of new goods that was measured; not the entry of new firms with new goods.

In other words, Chinese imports of an American firm may simply be displacing goods manufactured by the same firm in the US.

To sell something in numbers in a market requires distribution, support, sales organizations.

I've seen and experienced two things with Chinese goods. Brand name manufacturers use Chinese manufactured goods or components in their goods. If they do it properly it is fine, and expensive. The quality control of the whole supply chain required to produce something salable is not trivial. I had an experience where a manufacturer purchased thermistors from a Chinese manufacturer, and didn't do the rigorous quality control. It cost me substantial amounts of money, and the manufacturer as well. They ended up purchasing from a Japanese run factory in China to get reliable quality. In other words to get something with the same fit and finish from a Chinese manufacturer was a marginal saving.

As for Chinese manufacturers and distribution, the products are cheaper but not less expensive. An example. A refrigerated display case, 6ft curved glass front. Common in food service. A Chinese brand showed up and they were about half the price. Some European components, likely manufactured in asia somewhere. Nice looking, decent fit. The problem was that there was no support or parts distribution. A client broke the glass. By then the product was no longer available. Distribution that supports a market costs substantial amounts of money.

I'm somewhat surprised by this paper because i have seen Chinese products available at a serious discount, but most of the stuff i use in business and home if they are Chinese are strained through a North American distributor.

A few years ago, probably 2006 ish Chinese copper piping and fittings became available and they were cheap. They were seriously defective, not meeting the industrial standards that they were stamped with. It cost hundreds of thousands, and the market dried up for anything Chinese. For those factories to manufacture to industrial standards would have increased the price, and since most of the quality comes from automated manufacturing techniques the savings would be marginal.

The Chinese wasn't stupid and having a well established brand as a sales conduit and more importantly learning the quality control processes required to serve the market was both much more valuable that selling lots of trash for cheap.

Huawei is an example. They learned how to do it from apple, and now produce a compelling product that doesn't complete on price alone.

I think you are right that us and European manufacturers kept price increases down by using Chinese components.

I don't think that the industrial production know-how is available in the us for many things.

'I don't think that the industrial production know-how is available in the us for many things.'

And yet a generation ago it was. One can safely make the assumption that it was not merely happenstance that led to this, but a number of policies and philosophies that stand in stark contrast to those policies and philosophies that existed during the roughly 3 generations America was the most innovative industrial society ever seen.

My understanding is that Apple wanted to sell iPhones in Brazil and India, and now is constructing manufacturing Platforms in those two nations so that it can sell iPhones in Brazil and India.

It is probably bad macroeconomics for those nations to require local manufacturing facilities. Nevertheless Apple seems to believe to be able to develop the infrastructure and supply chains needed to produce iPhones.

I conclude that Apple can in fact manufacture iPhones in the United States if it is able to do so in nations such as India and Brazil.

At one point Japan was more or less strong-armed into moving some auto manufacturing facilities to the United States, but those facilities have since fleshed out and become successful.

Industrial location is a fascinating topic, and I think rarely occurs in a purely free-market environment. Singapore has had a great deal of success in artificially creating conditions that reward location in Singapore. Singapore's per capita GDP PPP is 50% higher than that of the United States.

One must remember that Brazil now has the focused, public-spirited, no-nonsense kind of Administration we, Americans, used to take for granted, but now can only dream about.

Investor gains from Chinese imports (production) is even greater than consumer benefits. I'm just pointing out the obvious. Wouldn't it be interesting to see how much Chinese imports (production) has contributed to inequality in America, not because of the loss of production in America but because of the rise in investments assets in America that is attributable to production in China.

Waaaay ahead of you Ray. The fusion of the US and Chinese economies is an inequality generator because of the way the Chinese system works, they like to give monopoly or near monopoly access to their markets in exchange for political access and forced technology transfer.

but because of the rise in investments assets in America that is attributable to production in China.---rayward

Well, if huge amounts of Sino capital flow into a limited supply of zoned real estate and housing, you will see house price explosions---witness Vancouver, until China instituted capital controls.

Nations that run chronic and large current account trade deficits can generally expect to see exploding house prices (due in part to the ubiquity of property zoning).

Not a polite topic in "free trade" circles.

Brits cannot afford to buy a house in their home country, nor Americans along the West Coast.

Some Americans can, and do. More importantly, other Americans are selling that property, voluntarily. The right to private property loses much of its meaning if its transfer is limited.

Point missed: By shifting production to China, American companies generate enormous (untaxed) profits, which which causes their stock prices to rise, benefiting the investor class in America, which increases inequality in America. Duh.

Tyler, you got the wrong link. This one leads to "Do the Rich Get Richer in the Stock Market? Evidence from India" by John Campbell et al.

Strange that I would be the first to notice!?!

Good info which is worth reading it. Thanks

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