Anxiety or Pain? The Impact of Tariffs and Uncertainty on Chinese Firms in the Trade War

Abstract

The unexpected outbreak of the U.S.-China trade war led to dramatic increases in the import and export tariffs confronting Chinese firms. Due to firm-level differences in trade engagement, customs trade data combined with tariff changes allow us to measure firm-level exposure to the trade war. Further, by adopting a new textual analysis approach to listed firms' annual reports, we develop trade policy uncertainty (TPU) measures that vary over firms and time. Our differencein-differences examination of these firm-level data reveals that trade war increases in U.S. tariffs and Chinese retaliatory tariffs both raised Chinese firms' TPU. The impact of tariffs on uncertainty is heterogeneous, and is most pronounced for smaller and less capital-intensive firms. This effect is also smaller for Chinese exporters that were more diversified in terms of partner countries. In the second stage of our analysis we explore and document the negative connection between Chinese firm-level increases in TPU and subsequent firm performance. 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 1.4, 2.7, and 8.9 percent, respectively.

Trade Shocks and Firms Hiring Decisions: Evidence from Vacancy Postings of Chinese Firms in the Trade War

“…However, we do observe requested characteristics of firms' potential future employees. Given lower sales and the economic and political uncertainty surrounding the trade war, we expect that the number of job vacancies posted by firms facing additional US tariffs will decline (Handley, 2014;Handley and Limão, 2015;Benguria et al, 2020). We might also expect adjustments in the advertised compensation, if local labor market conditions allow for it.…”

“…Group 2 can be viewed as being exposed to a higher tariff risk, and hence more similar to the treatment group, given its trade linkages with the US, potential treatment in earlier rounds (China I and II) and the surrounding trade policy uncertainty (e.g. Benguria et al, 2020). 32 When we re-estimate our main specifications on vacancy postings considering the respective control groups separately, we find that reductions in the number of job ads are quantitatively and statistically more pronounced relative to Group 1.…”

“…At least two elements complicate such reasoning. First, the US-China trade war has created substantial economic uncertainty among Chinese firms (Benguria et al, 2020). While selection, timing, and magnitude of additional tariffs did not follow any rule-based mechanism, also their duration is unknown.…”

On the relation between purchasing manager’s index and trade policy uncertainty: evidence from China, Japan and the USA

“…US manufacturing firms are highly induced by trade policy uncertainty; an excess risk premium commands it. Further, Benguria et al (2020) analyze the unexpected outbreak of the trade war between the US and China by developing firm-level TPU using a difference-in-difference approach. The authors report that simultaneous actions of the tariff hike resulted in an increase of the Chinese firm’s TPU and the effects of a tariff on firm-level TPU were found to be heterogeneous like it is more pronounced for the smaller and less capital intensive firms.…”

The SOE Premium and Government Support in China's Credit Market

“…One potential concern is that the worsening profitability and fundamentals for non-SOEs could be driven instead by the US-China trade war, which started in early 2018. To address this issue, we perform robustness checks by dividing our sample into two: one focuses on firms in industries that are affected by the trade war, and the other on industries that are less affected, using the industry specifications given by Benguria, Choi, Swenson, and Xu (2020). 19 Table 9 re-examines the performance difference between non-SOEs and SOEs within the two subsamples separately.…”