Working Paper: NBER ID: w27920
Authors: Felipe Benguria; Jaerim Choi; Deborah L Swenson; Mingzhi Xu
Abstract: The unexpected outbreak of the U.S.-China trade war led to dramatic increases in the import and export tariffs confronting Chinese firms. Due to firm-level differences in trade engagement, customs trade data combined with tariff changes allow us to measure firm-level exposure to the trade war. Further, by adopting a new textual analysis approach to listed firms' annual reports, we develop trade policy uncertainty (TPU) measures that vary over firms and time. Our difference-in-differences examination of these firm-level data reveals that trade war increases in U.S. tariffs and Chinese retaliatory tariffs both raised Chinese firms’ TPU. The impact of tariffs on uncertainty is heterogeneous, and is most pronounced for smaller and less capital-intensive firms. This effect is also smaller for Chinese exporters that were more diversified in terms of partner countries. In the second stage of our analysis we explore and document the negative connection between Chinese firm-level increases in TPU and subsequent firm performance. 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 1.4, 2.7, and 8.9 percent, respectively.
Keywords: Tariffs; Trade Policy Uncertainty; Chinese Firms; US-China Trade War
JEL Codes: D81; F13; F14; F51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US tariffs (F19) | TPU (O39) |
| Chinese tariffs (F19) | TPU (O39) |
| TPU (O39) | Firm performance (L25) |
| US tariffs (F19) | Firm performance (L25) |
| Chinese tariffs (F19) | Firm performance (L25) |
| Firm size (L25) | Impact of US tariffs on TPU (F69) |