Working Paper: NBER ID: w28758
Authors: Mary Amiti; Sang Hoon Kong; David Weinstein
Abstract: This paper develops a methodology to assess the expected impact of trade-policy announcements on aggregate welfare using financial market reactions. We use an infinite-horizon specific factors model of production to map the present discounted value of firm cash flows into aggregate welfare. We show that the policy-induced movement in the present value of firm cash flows—a variable that can be estimated from financial data—encapsulates the welfare impact of the tariffs. After applying our framework to the data, we find that the U.S.-China trade war lowered U.S. welfare by three percent.
Keywords: Trade Policy; Welfare; Stock Market; US-China Trade War
JEL Codes: F13; F14; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade War (F19) | Uncertainty (D89) |
| Trade War (F19) | US Stock Prices (G12) |
| Trade War (F19) | Expected Cash Flows (G19) |
| Trade War (F19) | US Welfare (I38) |
| Trade War (F19) | Total Factor Productivity (TFP) (D24) |
| Trade War (F19) | Real Wages (J31) |
| Trade War (F19) | Macro Effects (E60) |
| Expected Cash Flows (G19) | US Welfare (I38) |
| Expected Cash Flows (G19) | Total Factor Productivity (TFP) (D24) |
| Expected Cash Flows (G19) | Real Wages (J31) |