How Does Trade Liberalization Affect the Quality of China's Export Goods? A Perspective of a Decline in Trade Policy Uncertainty

Abstract

There is a conventional view that trade liberalization would promote the quality upgrading of export goods, which is, however, at odds with the case after China's access to the WTO. From a perspective of trade policy uncertainty, this paper employs the natural experiment that U.S.A has adjusted its tariff policy for China's products before and after China's access to the WTO to analyze the impact of trade liberalization on the quality of China's export goods by difference-in-difference model. It draws the results as follows:firstly, in the process of trade liberalization, a decline in trade policy uncertainty has degraded the quality of China's export goods to U.S.A;and this result is robust under the conditions of different quality measurement, the control of costs effects and the use of differentiated products, trade partners and samples; secondly, the decline in trade policy uncertainty degrades the overall quality of China's export goods mainly through quality adjustment in terms of extensive margin, that is to say, under trade policy uncertainty, more decrease in trade policy uncertainty leads to the access of more firms producing low-quality products to export markets; thirdly, as for the intensive margin, surviving enterprises cannot make timely adjustment to products quality according to the decline in trade policy uncertainty, thereby failing to shift the trend of a decrease in the quality of China's export goods to U.S.A in the short run. It has an implication for China about how to improve the quality of export products during the process of trade liberalization.