The effects of consumer goods tariff reductions on market competition in China

This study investigates the impact of import tariff reductions on domestic market competition, addressing the gap in trade liberalization research related to consumer goods. Using data from the China Stock Market & Accounting Research (CSMAR) database and the World Integrated Trade Solution (WITS) database covering the period from 2010 to 2019, we employ a two-level utility function to analyze how tariffs influence domestic market competition. Our analysis reveals a significant relationship between tariff reductions and increased market competition, driven by both price effects and innovation through the learning-by-doing process. The core results vary by firm characteristics, including ownership type, firm size, location, degree of marketization, and infrastructure development. These findings have important policy implications for trade liberalization, suggesting that reducing import tariffs on consumer goods is essential for improving market competition.