Anxiety or pain? The impact of tariffs and uncertainty on Chinese firms in the trade war

Felipe Benguria, Jaerim Choi, Deborah L. Swenson, Mingzhi (Jimmy) Xu

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

The unexpected outbreak of the U.S.-China trade war led to dramatic increases in the import and export tariffs confronting Chinese firms, and ushered in an era of unprecedented trade policy uncertainty (TPU). To assess the effects of this development on the operations of Chinese firms we adopt a new textual analysis approach to listed firms’ annual reports that allows us to create measures of TPU that vary over firms and time. Linking our new TPU measures to firm-level trade war exposure shows that increases in U.S. tariffs and Chinese retaliatory tariffs elevated firm-level TPU. The effects of Chinese firm-level tariff changes on firm TPU are heterogeneous: smaller firms experienced the most pronounced increases while firms that were more diversified in terms of partner countries were more insulated. Importantly, connecting firm-level increases in TPU during the trade war with subsequent firm performance reveals notable impairment of firm operations. Our estimates indicate that Chinese firms hit by a one standard deviation increase in TPU during the trade war reduced firm-level investment, R&D expenditures, and profits by 2.3, 2.3, and 11.5 percent, respectively.

Original languageEnglish
Article number103608
JournalJournal of International Economics
Volume137
DOIs
StatePublished - Jul 2022

Bibliographical note

Funding Information:
We are thankful to Sisi Zhang for outstanding research assistance. We thank JaeBin Ahn, Hanming Fang, Theresa Greaney, Sebastian Heise, Jung Hur, Jay Hyun, Byung-Cheol Kim, Ryan Kim, Noh-Sun Kwark, JoonHyung Lee, Sang-Hyop Lee, SeungHoon Lee, Yang Liang, Nuno Limao, Yuan Mei, Will Olney, E Young Song, Alan Spearot, James Tybout, Jian Wang, Xiaojun Wang, and seminar participants at AEA/ASSA Annual Meeting 2021, KERIC 2020, KAEA 2020, Peking University, Sogang University, and the University of Hawaii. Mingzhi Xu thanks financial support from the National Science Foundation of China (Grant No. 72003003 ), Peking University Initiative Scientific Research Program (Grant No. 7101302576 ) and Peking University International Strategic Cooperation Research Program (Grant No. 7101702318 ).

Funding Information:
We are thankful to Sisi Zhang for outstanding research assistance. We thank JaeBin Ahn, Hanming Fang, Theresa Greaney, Sebastian Heise, Jung Hur, Jay Hyun, Byung-Cheol Kim, Ryan Kim, Noh-Sun Kwark, JoonHyung Lee, Sang-Hyop Lee, SeungHoon Lee, Yang Liang, Nuno Limao, Yuan Mei, Will Olney, E Young Song, Alan Spearot, James Tybout, Jian Wang, Xiaojun Wang, and seminar participants at AEA/ASSA Annual Meeting 2021, KERIC 2020, KAEA 2020, Peking University, Sogang University, and the University of Hawaii. Mingzhi Xu thanks financial support from the National Science Foundation of China (Grant No. 72003003), Peking University Initiative Scientific Research Program (Grant No. 7101302576) and Peking University International Strategic Cooperation Research Program (Grant No. 7101702318).

Publisher Copyright:
© 2022 The Authors

Keywords

  • Firm-level analysis
  • Tariffs
  • Trade policy uncertainty
  • Trade war

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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