Testing the Theory of Trade Policy: Evidence from the Abrupt End of the Multifiber Arrangement

Quota restrictions on United States imports of apparel and textiles under the multifiber arrangement (MFA) ended abruptly in January 2005. This change in policy was large, predetermined, and fully anticipated, making it an ideal natural experiment for testing the theory of trade policy. Prices of quota-constrained categories from China fell by 38% in 2005, with smaller declines from other exporters. Prices in unconstrained categories from all countries changed little. We also find substantial quality downgrading in imports from China in previously constrained categories. The annual cost of the MFAto U.S. consumers was $63 per household. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.