How Sensitive are US Imports to Competition from China?
In this paper we estimate the elasticity of substitution of US imports using detailed trade data over the 1990-2003 period. We use a two-stage least squares framework in order to identify the elasticity parameter of interest. Our elasticity estimates for aggregate imports are in line with those of other recent studies. Moreover, our methodology allows us to provide elasticity estimates at the sectoral level. We use the elasticity estimates to assess the extent to which Latin American and Chinese goods compete in the U.S. market by providing forecasts of how alternative policy scenarios may affect exports to the United States. We consider the following scenarios: (i) currency revaluation in China; (ii) elimination of US tariffs on Latin American exports under a hemispheric free trade agreement; and (iii) the elimination of quotas on apparel and textile exports under the Multi-Fiber Agreement. We find that a 20-percent appreciation of the renminbi reduces Chinese exports to the United St
