Tariff Uncertainty and Firm Innovation: Evidence from the U.S.-China Permanent Normal Trade Relation

45 Pages Posted: 13 Jun 2019 Last revised: 16 Feb 2021

See all articles by Tao Chen

Tao Chen

Nanyang Business School, Nanyang Technological University

Huasheng Gao

Fudan University

Yuxi Wang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Date Written: January 31, 2021

Abstract

The 2018 U.S.-China trade war has spurred wide-spread debates about the effects of Chinese imports on U.S. society. We examine the effect of United States’ conferral of Permanent Normal Trade Relations (PNTR) on China — a policy that eliminates the uncertainty of future tariff increases for Chinese goods — on U.S. firm innovation. We find a significant increase in the number of patents and patent citations for U.S. firms affected by PNTR relative to other firms. This result is stronger for firms located in the coastal area, and for firms in industries that experience a greater increase in Chinese goods following PNTR. Our evidence suggests that PNTR induces U.S. firms to innovate more.

Keywords: Permanent Normal Trade Relations, Innovation, Patents, Imports, China

JEL Classification: G38, O31

Suggested Citation

Chen, Tao and Gao, Huasheng and Wang, Yuxi, Tariff Uncertainty and Firm Innovation: Evidence from the U.S.-China Permanent Normal Trade Relation (January 31, 2021). Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3396232 or http://dx.doi.org/10.2139/ssrn.3396232

Tao Chen

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Huasheng Gao (Contact Author)

Fudan University ( email )

220 Handan Road
Shanghai, 200433
China
2165642222 (Phone)
2165642222 (Fax)

HOME PAGE: http://www.huashenggao.net

Yuxi Wang

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200030
China

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