Trade Networks and Firm Value: Evidence from the US-China Trade War

81 Pages Posted: 26 Aug 2018 Last revised: 5 Dec 2019

See all articles by Yi Huang

Yi Huang

Graduate Institute of International and Development Studies

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Sibo Liu

Department of Economics, Lingnan University

Heiwai Tang

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); CESIfo

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Date Written: September 10, 2019

Abstract

This paper evaluates the financial implications of policy shocks for global production networks. We use the announcements of tariff increases on a wide range of goods by the U.S. and Chinese governments in 2018-2019 as events, starting with the presidential memorandum issued by the Trump administration on March 22, 2018, to study the impact of trade policy shocks on firms’ stock market performance. Using various novel datasets, we document that firms’ stock market responses to the announcements are determined by the degree of their direct exposure to U.S.-China trade and their indirect exposure through the global value chains. In particular, U.S. firms that are more dependent on exports to and imports from China have lower stock returns and higher default risk around the announcement dates, whereas the reduced import competition from China has a limited effect on the firms. We also find consistent patterns of stock market reactions by Chinese firms. Two reverse experiments in 2019 further validate how the complex structure of global trade shapes stock market reactions to policy shocks.

Keywords: firm value, event study, trade policy, offshoring, global value chains

JEL Classification: F10, G12, G14, O24

Suggested Citation

Huang, Yi and Lin, Chen and Liu, Sibo and Tang, Heiwai, Trade Networks and Firm Value: Evidence from the US-China Trade War (September 10, 2019). Available at SSRN: https://ssrn.com/abstract=3227972 or http://dx.doi.org/10.2139/ssrn.3227972

Yi Huang

Graduate Institute of International and Development Studies ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Sibo Liu

Department of Economics, Lingnan University ( email )

8 Castle Peak Rd, Tuen Mun
Hong Kong

Heiwai Tang (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

CESIfo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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