The impact of US–China trade war on Chinese firms: Evidence from stock market reactions

ABSTRACT

We study Chinese firms’ stock market reactions of US–China trade war. Using stock market returns of listed firms and corresponding firm-level export information from China Customs database, we find a negative effect of trade war that firms with higher proportion of prior export to US show more negative market reactions. This effect is strongest among firms with non-state ownership. Further evidences show that the negative impact largely comes from firms exposed directly to tariff increase.

KEYWORDS:

• US–China trade war
• event study
• state-owned enterprises
• export exposure
• tariff increase exposure

JEL CLASSIFICATION:

• F13
• G14

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ When using market model with estimation window of previous 3–6 months, our main results remain robust.

² We consider the listed firms in 2015 because the latest available China Customs database was 2015. We also delete one listed firm with outlier value in our main explanatory variable.

³ To avoid the influence of extreme values, control variables are winsorized at 1st and 99th percentiles.

⁴ SOEs are listed firms whose actual controllers are enterprises or institutions owned by central or (and) local government.

⁵ We use the announcement date of intention instead of the release date of product list because Trump administration released 301 investigation report targeting ‘Made in China 2025’ on 23 March 2018 and the first product list subject to tariff increase is closely related to ‘Made in China 2025’.

Additional information

Funding

Xiaoquan Wang acknowledges financial support from the National Natural Science Foundation of China [71902062] and the Fundamental Research Funds for the Central Universities [41300-20101-222637]. All errors are our own.