The impact of the China–US trade war on firms’ financial performance—Evidence from China

ABSTRACT

This study examines the impact of tariff policy on the financial performance of Chinese listed firms and the underlying mechanisms involved during the China–US trade war. Unexpectedly, our analysis using difference-in-differences estimation indicates that the financial performance of firms directly affected by the trade war is slightly better in the short-term compared to unaffected firms. We confirmed these results through robustness checks. Further investigation shows that this unintended consequence can be explained by the strategic allocation of resources to the domestic market, additional subsidies from the government, and a reduction in operating expenses. Our findings provide insight into the real effects of the tariff war on the economy at the firm level.

KEYWORDS:

• China–US trade war
• tariff policy
• financial performance
• reallocation

JEL CLASSIFICATION:

• F13
• D21
• G30

Supplementary data

Supplemental data for this article can be accessed online at https://doi.org/10.1080/00036846.2023.2277686

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The detail information on the application of increased tariffs at industry level is provided in Appendix.

² In 2015, China surpassed Canada to become the largest trading partner of the United States, which initiates a new era in global trade. Therefore, our study starts in 2015. Consider the COVID-19 pandemic in early 2020 caused great impact on the economy, so the data set end in 2019.

³ We also rerun the DID model based on the matched sample with the propensity score matching method to alleviate the sample selection problem. In addition, we check the satisfaction of parallel assumption and make sure the validity of identification with the placebo test. We provide the corresponding results in the appendix.