Chinese Import Competition and Dampened Monetary Policy in the US Counties (2024)

Undergraduate: Thomas Decker

Faculty Advisor: Neville Francis
Department: Economics

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The long decline in US manufacturing related to the emergence of China as a global economic superpower has been studied in myriad contexts, but whether it has dampened the effectiveness of US monetary policy remains unclear. As such a manufacturing loss would erode the interest rate channel of monetary policy transmission, there is good reason to believe that this is the case. Using local projections, this research finds a strong effect of Chinese import penetration in US counties from 1992-2008 on reducing monetary shock troughs. This finding is robust to a host of county level demographic and economic controls, as well as alternative shock series. The effect of import penetration at higher deciles is positive, increasing, and significant across employment, wage, and establishment responses. Further analysis finds the same relationship using data for 2008-2022. These results are important for policymakers inside and outside of the central bank, especially considering recent persistent inflation.