The paper explores the causes of China's rising manufacturing exports to the EU after WTO accession. While the European trade policy environment remained largely unchanged in most sectors, a spillover from a change in US trade policies towards China is emphasized. In the proposed model the transmission occurs through a global component of the xed costs rms must pay in order to export. If a large fraction of this component can be covered from exporting to one destination, exporters will serve also other markets to maximize their pro ts. The empirical analysis makes use of the removal of US tari uncertainty in conjunction with China's WTO accession. It shows that: (i) the structure of China's export boom to the EU conforms to the pattern of US tari uncertainty; (ii) the adjustment takes place at the extensive margin, (i.e. a good is exported to more destinations); and (iii) the e ect phases out after a few years. The results have implications for the scope of international policy negotiations and provide suggestive evidence on the nature of the xed costs that manufacturing rms in low-wage countries must overcome.
| ||||||||||||||||||||||||||||||||||||||||||||||