Trade Linkages and Firm Value: Evidence from the 2018 US-China 'Trade War'

48 Pages Posted: 26 Aug 2018

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

The University of Hong Kong, Faculty of Business and Economics

Heiwai Tang

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

Date Written: August 7, 2018

Abstract

On March 22, 2018, Trump proposed to impose tariffs on up to $50 billion of Chinese imports, leading to a significant concern over the “Trade War” between the US and China. We evaluate the market responses to this event for firms in both countries, depending on their direct and indirect exposures to US-China trade. US firms that are more dependent on exports to and imports from China have lower stock and bond returns but higher default risks in the short time window around the announcement date. We also find that firms’ indirect exposure to US-China trade through domestic input-output linkages affects their responses to the announcement. These findings suggest that the structure of US-China trade is much more complex than the simplistic view of global trade that engendered Trump’s “Trade War” against China.

Keywords: Stock Returns, Event Study, Trade Policy, Offshoring, Input-Output Linkages, Global Value Chains

JEL Classification: F10, G12, G14, O24

Suggested Citation

Huang, Yi and Lin, Chen and Liu, Sibo and Tang, Heiwai, Trade Linkages and Firm Value: Evidence from the 2018 US-China 'Trade War' (August 7, 2018). 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

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

Pokfulam Road
Hong Kong
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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