Despite the increasing trend of food exports from China to the United States due to the robust demand, reduced tariff and eased restrictions on cross-border investment, there have been an increased use of non-tariff measures (NTMs) which makes access to the US market remains challenging. Seafood is the product group with the most shipments refused over 2007-2017. It accounts for 20.8 percent among all shipments of food products from China that were rejected at the US border. Using a transaction-level data for Chinese exports and US data on import refusals, we explore how heterogeneous firms respond to the border rejections in terms of entry, exit, survival, and trade deflection to other markets.
The results indicate that US import refusals have a small negative effect on the extensive margins, but a relatively significant impact on the intensive trade margins. Exporters of food tend to export less to the US if the product they export has been rejected in the last year. Our research shows this adverse effect also spills to related products and firms. At the same time, exporters are less likely to ship goods to alternative markets once those products have been refused entry in the US market, which implies a progressively global harmonization of food safety regulations. However, import refusals still yield significant trade deflection through reputational spillover effects. If firm-product pairs got rejected by the FDA, other firms selling the same products are more likely to export those products to countries other than the US.