Government Credit and Trade War

By merging transaction-level trade data from China Customs and loan data from the China Development Bank (CDB), we analyze the effects of government credit on trade activities. We find that CDB credit mainly flows to SOEs in strategic industries at the top of the supply chain. These up-stream loans lead to the lower price and higher amount of export goods of private firms in down-stream industries, which leads to decreases in employment and performance of the US firms in the same industry. In contrast, the US firms in downstream industries use cheaper intermediate goods imported from China and perform better subsequently.

Keywords: government credit, export, supply chain, trade war

JEL Classification: E51, F30, G21, G28

Suggested Citation: Suggested Citation

Cai, Ning and Feng, Jinglu and Liu, Yong and Ru, Hong and Yang, Endong, Government Credit and Trade War (April 23, 2019). BOFIT Discussion Paper No. 7/2019, Available at SSRN: https://ssrn.com/abstract=3378401 or http://dx.doi.org/10.2139/ssrn.3378401