Wal-Mart as Catalyst to U.S.-China Trade

Retail chains and the volume of imports of consumer goods from developing countries have grown sharply over the past 25 years. Wal-Marts sales, which currently account for 15% of U.S. imports of consumer goods from China, grew 90-fold over this period, while U.S. imports from China increased 30-fold. We relate these trends using a model in which scale economies in retail interact with scale economies in the import process. Combined, these scale economies amplify the effects of technological change and trade liberalization, creating a two-way relationship between the chains size and its sourcing choice. Falling trade bar- riers increase imports not only through direct reduction of input costs but also through an expanded chain and higher investment in technology. Calculations based on our model suggest that the existence of the chain more than doubles the sensitivity of imports to tariff reductions. Technological innovations account for approximately 60% of Wal-Marts growth from 19842004 and reductions in input cost, due to tariff reductions and changes in sourcing, account for 40% of this growth.