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 made during the U.S.-China trade war had broad effects on financial variables. Announcements systematically decreased stock prices and raised nominal and real bond prices. We use a specific factors model to show that the welfare impact of the tariffs can be identified from the policy-induced movement in the present value of firm cash flows: a variable that can be estimated from financial data. Using this framework, we find that the U.S.-China trade war lowered U.S. welfare by three percent. We show that these cash flow movements can be further decomposed into market expectations about how tariffs affect current and future prices and productivity. Seen through the lens of our model, the market reactions to tariff announcements can be explained by expectations that tariffs lead to large, negative future price and TFP shocks that play an important role in dynamic, but not static, models.

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
Note: ITI
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Citations: View citations in EconPapers (8)

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Working Paper: Trade Protection, Stock-Market Returns, and Welfare (2021)
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