TY - JOUR
T1 - Anxiety or pain? The impact of tariffs and uncertainty on Chinese firms in the trade war
AU - Benguria, Felipe
AU - Choi, Jaerim
AU - Swenson, Deborah L.
AU - Xu, Mingzhi (Jimmy)
N1 - Publisher Copyright:
© 2022 The Authors
PY - 2022/7
Y1 - 2022/7
N2 - 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.
AB - 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.
KW - Firm-level analysis
KW - Tariffs
KW - Trade policy uncertainty
KW - Trade war
UR - http://www.scopus.com/inward/record.url?scp=85128674061&partnerID=8YFLogxK
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U2 - 10.1016/j.jinteco.2022.103608
DO - 10.1016/j.jinteco.2022.103608
M3 - Article
AN - SCOPUS:85128674061
SN - 0022-1996
VL - 137
JO - Journal of International Economics
JF - Journal of International Economics
M1 - 103608
ER -