Anxiety or pain? The impact of tariffs and uncertainty on Chinese firms in the trade war

Felipe Benguria, Jaerim Choi (), Deborah L. Swenson and Mingzhi (Jimmy) Xu

Journal of International Economics, 2022, vol. 137, issue C

Abstract: The unexpected outbreak of the U.S.-China trade war led to dramatic increases in the import and export tariffs confronting Chinese firms, and ushered in an era of unprecedented trade policy uncertainty (TPU). To assess the effects of this development on the operations of Chinese firms we adopt a new textual analysis approach to listed firms’ annual reports that allows us to create measures of TPU that vary over firms and time. Linking our new TPU measures to firm-level trade war exposure shows that increases in U.S. tariffs and Chinese retaliatory tariffs elevated firm-level TPU. The effects of Chinese firm-level tariff changes on firm TPU are heterogeneous: smaller firms experienced the most pronounced increases while firms that were more diversified in terms of partner countries were more insulated. Importantly, connecting firm-level increases in TPU during the trade war with subsequent firm performance reveals notable impairment of firm operations. 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 2.3, 2.3, and 11.5 percent, respectively.

Keywords: Trade war; Tariffs; Trade policy uncertainty; Firm-level analysis (search for similar items in EconPapers)
JEL-codes: D81 F13 F14 F51 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

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Working Paper: Anxiety or Pain? The Impact of Tariffs and Uncertainty on Chinese Firms in the Trade War (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:137:y:2022:i:c:s002219962200040x

DOI: 10.1016/j.jinteco.2022.103608

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