Energy use in U.S. manufacturing and increasing imports from China: Empirical analysis

Abstract

ABSTRACT This study numerically estimates the effect of increased Chinese import penetration using U.S. manufacturing-level panel data from 1997 to 2005. It also decomposes this effect into factor substitution effects and output scale effects. Since import penetration rates may have endogeneity problems, we use China’s share of world trade to quantify Chinese import penetration. The results show that increased imports from China increase fuel and electricity consumption: the marginal effect of Chinese import penetration is small but statistically significant, ranging from about 0.05% to 0.08%. Interestingly, the decomposition reveals opposite effects across energy types: the factor substitution effect for fuel is positive, while the factor substitution effect for electricity is negative, despite the impact of Chinese imports. The effects on fuel and electricity are both significantly positive, while the effect on electricity is negative. These results suggest the need for different policy responses across industries to the effects of trade, with implications for the environmental problems caused by energy use.