Anxiety or Pain? The Impact of Tariffs and Uncertainty on Chinese Firms in the Trade War

45 Pages Posted: 14 Oct 2020 Last revised: 16 Apr 2021

See all articles by Felipe Benguria

Felipe Benguria

University of Kentucky - Gatton College of Business and Economics

Jaerim Choi

University of Hawaii at Manoa - Department of Economics

Deborah Swenson

affiliation not provided to SSRN

Mingzhi Xu

Peking University - School of Economics

Date Written: October 2020

Abstract

The unexpected outbreak of the U.S.-China trade war led to dramatic increases in the import and export tariffs confronting Chinese firms. Due to firm-level differences in trade engagement, customs trade data combined with tariff changes allow us to measure firm-level exposure to the trade war. Further, by adopting a new textual analysis approach to listed firms' annual reports, we develop trade policy uncertainty (TPU) measures that vary over firms and time. Our difference-in-differences examination of these firm-level data reveals that trade war increases in U.S. tariffs and Chinese retaliatory tariffs both raised Chinese firms’ TPU. The impact of tariffs on uncertainty is heterogeneous, and is most pronounced for smaller and less capital-intensive firms. This effect is also smaller for Chinese exporters that were more diversified in terms of partner countries. In the second stage of our analysis we explore and document the negative connection between Chinese firm-level increases in TPU and subsequent firm performance. Our estimates indicate that Chinese firms hit by a one standard deviation increase in TPU during the trade war reduced firm-level investment, R&D expenditures, and profits by 1.4, 2.7, and 8.9 percent, respectively.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Benguria, Felipe and Choi, Jaerim and Swenson, Deborah and Xu, Mingzhi, Anxiety or Pain? The Impact of Tariffs and Uncertainty on Chinese Firms in the Trade War (October 2020). NBER Working Paper No. w27920, Available at SSRN: https://ssrn.com/abstract=3709610

Felipe Benguria (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States

Jaerim Choi

University of Hawaii at Manoa - Department of Economics ( email )

Honolulu, HI
United States

HOME PAGE: http://www.jaerimchoi.com/

Deborah Swenson

affiliation not provided to SSRN

No Address Available

Mingzhi Xu

Peking University - School of Economics ( email )

Beijing
China

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

Paper statistics

Downloads
2
Abstract Views
114
PlumX Metrics