How China Responded to the Trade War: Evidence from Subsidies and Public Procurement

Paul-Emile Bernard (), Jie Li and Gary Ziwen Zu
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Paul-Emile Bernard: University of Paris-Dauphine, PSL
Jie Li: University of Jinan, Guangzhou
Gary Ziwen Zu: University of California, San Diego

No DT/2025/09, Working Papers from DIAL (Développement, Institutions et Mondialisation)

Abstract: This paper investigates how the Chinese government reallocated public resources to mitigate the effects of the U.S.–China trade war. Using a novel firm-level dataset linking tariff exposure with subsidies and procurement contracts between 2015 and 2020, we identify exogenous variation through a Bartik (shift–share) design based on pre-war trade patterns. In the first step, focusing on listed firms, we show that those more exposed to U.S. tariffs received significantly higher direct subsidies—about 7.7% more for a one-standard-deviation increase in exposure. Yet, support primarily targeted politically connected rather than productive firms, suggesting allocation distortions. In the second step, we extend the analysis to a broader panel including small and medium-sized firms using public procurement data. Local favoritism dominates: firms operating within their own jurisdiction received contracts roughly three times larger, especially when exposed to U.S. tariffs. Together, these findings reveal that both national and local authorities cushioned the trade shock through politically and territorially selective interventions.

Keywords: Subsidy; Public Procurement; Trade War; Tariffs (search for similar items in EconPapers)
JEL-codes: F13 F51 H25 H57 H70 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2025-11
New Economics Papers: this item is included in nep-cna, nep-int and nep-sea
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