So why did American trade policy make such a big difference, even though tariffs didn’t fall? Pierce and Schott can’t say for sure, but they speculate that it has to do with patterns of investment.
Giving Chinese companies confidence that tariffs would stay low encouraged them to invest in production capacity aimed at supplying the American market. And giving American companies confidence that tariffs would stay low encouraged them to build supply chains around Chinese manufacturers.
Shifting production to Asia to save a few bucks on each item sold, in other words, might not make sense if there was a chance that you’d have to shift it back a year or two down the road. The old practice of keeping tariffs low but requiring the low-tariff status to be renewed on an annual basis gave US-based producers a significant amount of hidden protection. Despite the superficial appearance of openness to imports, the temporary nature of the low tariffs discouraged companies from making plans built around that openness.
This academic research changed my mind about China and trade policy