Exchange rate offset to US trade policy: The pricing response of Chinese exporters

The US trade conflict with China in 2018 and 2019 was accompanied by a marked appreciation of the US dollar. We provide evidence that Chinese exporters notably lower their prices in response to a USD appreciation. Our results thus suggest that the effect of the 2018–19 US tariff hikes on US (post-tariff) import prices was largely offset by a price reduction by Chinese exporters. This holds particularly for prices of intermediate goods, which make up a large share of Chinese exports to the US. To the extent that US trade policy was itself the driver of the USD appreciation, it induced significant offsetting effect. • We estimate the pass-through of USD movements on prices of Chinese exports to the US. • The exchange rate pass-through (ERPT) is far higher than the tariff pass-through. • The ERPT is higher for Chinese export prices than for other countries’ export prices. • The ERPT for intermediate goods is higher than for final goods. • In 2018/19, USD appreciation largely offset effect of US tariffs on US import prices.