Who Benefits from Trade Wars?

Ling Cen, Lauren Cohen, Jing Wu and Fan Zhang

No 32621, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using both the onset of the US-China trade war in 2018 and the most recent Russia-Ukraine War and associated trade tensions, we show a counterintuitive pattern in global international trade. Namely, while the average firm trading with these nations significantly decreases their trade with these jurisdictions following sanctions, government-linked firms show a marked contrast. In particular, government-linked firms actually significantly increase their importing activity following the onset of formal sanctions. The increase is large - roughly 30% (t=4.23), following the shock. We find no increase broadly for government-supplying firms to other countries (even countries in the same regions) at the same time, nor of these same firms in these same regions at other times. In terms of mechanism, government-linked supplier firms are nearly twice as likely to receive tariff exemptions as equivalent firms doing trade in the region who are not government suppliers. More broadly, these effects are increasing in the level of government connection. Using micro-level data, we find that government-supplying firms that recruit more employees with past government work experience also increase their importing activity more – particularly when the past employee worked in a government-contracting role. Lastly, we find evidence that this results in sizable accrued benefits in terms of firm-level profitability, market share gains, and outsized stock returns.

JEL-codes: F42 F51 G15 G38 (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-cis, nep-cna, nep-ifn, nep-int and nep-opm
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