How Chinese imports alleviate American poverty

Over at The American, an article points out a recent study by University of Chicago economists Christian Broda and John Romalis, which found that income inequality has risen very little over the past few decades and that the benefits of trade have been underestimated.

The Broda-Romalis paper, “Inequality and Prices: Does China Benefit the Poor in America?,”[PDF] shows that from 1994 to 2005, much of the increase in U.S. income inequality was actually offset by a decline in the price index of the goods that poorer households consume. Inflation for the richest 10 percent of U.S. households, which tend to spend more on services, was 6 percent higher than inflation for the poorest 10 percent, which tend to spend more on nondurable goods, the type of goods often imported from China and sold at Wal-Mart.

Broda and Romalis found that in the sectors where Chinese imports have increased the most (especially nondurable goods such as canned food and clothing), prices have fallen dramatically. They estimate that about one-third of the price decline for the poor is directly associated with rising imports from China. “In the sectors where there is no Chinese presence,” Broda says, “inflation has been more than 20 percent.”

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