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

Fanhai International School of Finance, Fudan University

Yuxi Wang

Shanghai Jiao Tong University - 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)

Fanhai International School of Finance, Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China
2165642222 (Phone)
2165642222 (Fax)

Yuxi Wang

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

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
220
Abstract Views
918
rank
170,636
PlumX Metrics