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The Consumption Response to Trade Shocks: Evidence from the US-China Trade War

Michael E. Waugh

NBER Working Paper No. 26353
Issued in October 2019
NBER Program(s):Economic Fluctuations and Growth Program, International Trade and Investment Program

This paper provides evidence on the consumption effects of trade shocks by exploiting changes in US and Chinese trade policy between 2017 and 2018. The analysis uses a unique data set with the universe of new auto sales at the US county level, at a monthly frequency, and a simple difference-in-difference approach to measure the effect of changes in trade policy on county-level consumption. As a lower bound, I estimate the elasticity of consumption growth to Chinese retaliatory tariffs to be around –1. This implies that counties in the upper quartile of the retaliatory-tariff distribution experienced a 3.8 percentage point decline in consumption growth. I further show that the consumption response corresponds with a decline in employment growth. These results suggest that Chinese retaliation is leading to concentrated welfare losses in the US.

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Document Object Identifier (DOI): 10.3386/w26353

 
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