Working Paper: NBER ID: w27114
Authors: Mary Amiti; Sang Hoon Kong; David Weinstein
Abstract: We develop a new method of quantifying the impact of policy announcements on investment rates that makes use of stock market data. By estimating the effect of U.S.-China tariff announcements on aggregate returns and the differential returns of firms exposed to China, we identify their effect on treated and untreated firms. We show theoretically and empirically that estimates of policy-induced stock-market declines imply lower returns to capital, which lowers investment rates. We estimate that the tariff actions through 2018 and 2019 will lower the investment growth rate of listed U.S. companies by 1.9 percentage points by the end of 2020.
Keywords: US-China trade war; investment rates; tariff announcements; stock market; returns to capital
JEL Codes: E22; F13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US-China tariff announcements (F19) | stock market declines (G10) |
| stock market declines (G10) | lower returns to capital (D33) |
| lower returns to capital (D33) | reduced investment rates (G31) |
| US-China tariff announcements (F19) | reduced investment rates (G31) |
| US-China tariff announcements (F19) | changes in market-to-book (MTB) values (G32) |
| changes in market-to-book (MTB) values (G32) | lower returns to capital (D33) |
| stock market declines (G10) | reduced investment rates four quarters later (G31) |
| US-China tariff announcements (F19) | overall decline in equity prices (G12) |
| overall decline in equity prices (G12) | reduced investment rates (G31) |