Trade Protection, Stock-Market Returns, and Welfare

Mary Amiti, Matthieu Gomez, Sang Hoon Kong and David Weinstein

No 28758, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Tariff announcements during the U.S.-China trade war had large and broad effects on financial variables: stock prices fell, yields declined, and risk premia rose. The stock-price reactions were heterogeneous in the cross-section during 2018–19—firms that imported from, exported to, or sold in China experienced significantly worse returns than other firms. These cross-sectional differences in announcement-day returns forecast subsequent declines in profits, sales, employment, and investment. Using a specific factors model, we show that these asset price movements can help identify the welfare impact of tariffs. We estimate that the trade war substantially reduced U.S. welfare.

JEL-codes: F13 F14 F16 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-cwa, nep-fdg and nep-int
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Working Paper: Trade Protection, Stock-Market Returns, and Welfare (2021)
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