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

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. I estimate the elasticity of consumption growth to Chinese retaliatory tariffs to be around minus one. This implies that counties in the upper quartile of the retaliatory-tariff distribution experienced a 3.8 percentage point decline in consumption growth. The fall in consumption corresponds with decline in both tradeable and retail employment. These results suggest that Chinese retaliation is leading to concentrated welfare losses in the US.