A Study On The Impact Of Intermediate Trade Liberalization On Heterogeneous Consumers’ Gains From Trade

With the deepening of international division of labor,the trade of intermediate goods is undoubtedly one of the main factors to promote the substantial growth of world trade.For China,the trade of intermediate goods has become an important pillar for China’s economic development.In terms of trade volume,the total imports of intermediate goods accounted for 74.59% of the total imports of goods in 2014.Since the early 1990 s,China has implemented policy reforms on import trade liberalization.The average nominal import tariffs for intermediate goods fell from 32.74% in 1992 to 6.74% in 2016.For a long time,most economists firmly believe that trade liberalization can improve economic interests as a whole,but ignores the impact of trade liberalization on the heterogeneous consumers gains from trade.The liberalization of trade in intermediate goods affects the gains of individual consumers by changing the relative prices and varieties of commodities.Due to the differences in the structure of consumer spending,the welfare of heterogeneous consumers has also been affected to varying degrees.This paper takes the influence of the liberalization of intermediate goods trade on the gains from trade of heterogeneous consumer individuals as the research object.The theoretical part constructs a theoretical model that incorporates consumer heterogeneity,intermediate input trade and enterprise heterogeneity.It believes that the liberalization of intermediate goods through making the allocation of resources in the intermediate product sector more reasonable and eventually improves the departmental productivity.Downstream differentiated product manufacturers can reduce product pricing by using intermediates and imported intermediates produced by high-productivity companies to reduce production costs.As product prices decline,more consumption will have the ability to consume differentiated products,so the demand for differentiated products will increase,and more companies will enter the differentiated product sector,and product categories will increase.The liberalization of trade in intermediate goods ultimately improves the welfare of consumers through price effects and variety effects.Because of the large share of differentiated products consumed by high-income people,the greater they benefit from the liberalization of intermediate goods trade.Empirically,this paper verifies the theoretical conclusions of the study by using a large amount of data from provincial statistical offices,WITS,USITC,USH,and customs.First,the importer price index for intermediate goods is reduced by 10%,and the producer purchase price index is decreased by 0.12%,indicating that the liberalization of trade inintermediate goods can indeed reduce the production costs of producers.Secondly,for every 10% reduction in import tariffs on intermediate goods,the price of differentiated consumer goods fell by 2.12%.This shows that trade liberalization of intermediate goods can improve individual welfare of consumers by reducing the price of differentiated products.After considering the development of China’s processing trade,this paper added the interaction between the urban processing trade share and the intermediate goods tariff in the regression.The regression result is significantly positive,indicating that the city with the largest share of processing trade,the effect of intermediate trade liberalization to the price of differentiated products is the largest.Drawing on the Porto(2006)method,this paper calculates the trade welfare at the household level.The liberalization of intermediate goods makes the consumption welfare of Chinese urban households rise by an average of10.5%.Combined with the family expenditure structure,it is found that the higher the income,the greater the individual’s benefit,because the greater the share of differentiated products they consume,which is consistent with the theoretical predictions.The conclusions of the article give us three main points.First,we continue to adhere to the direction of liberalization of intermediate goods,thus improving the welfare level of consumers.The second is to appropriately encourage and support the development of processing trade.Third,implement an active and effective income redistribution policy to improve the uneven distribution of trade benefits.