Political Risk and Firm Exit: Evidence from the US-China Trade War

Vortherms, Samantha A.; Zhang, Jiakun Jack

doi:10.2139/ssrn.3916186

Cited by 7 publications

(11 citation statements)

References 21 publications

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“…In response to the real needs of constituents faced with economic dislocation as a result of import competition, Republican politicians have favored rhetoric over policy. This has been mirrored by the heavy emphasis on rhetorical threats in the trade war with China as well as the reliance on tough-sounding but ineffectual tariffs (Vortherms & Zhang, 2021). We can trace Trump's own rhetorical strategy with its China focus to how individual Republican legislators dealt with rising import competition from China since 2000.…”

Section: Discussionmentioning

confidence: 99%

The partisan divide in U.S. congressional communications after the China shock

Kuk

Seligsohn

Zhang

2022

Economics & Politics

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Emerging literature shows that rising import exposure resulting from the China shock devastated U.S. manufacturing and contributed to the rise of Donald Trump. However, several studies found that these recent localized economic shocks did not negatively impact the tenure of incumbent politicians, and this outcome remains a puzzle.In this paper, we examine the partisan difference in congressional communication strategies on China and traderelated issues. We propose a theory of China-bashing to explain how members of Congress frame the negative impacts of trade to their voters. Using press release data from members of Congress, we show that, even though Chinese import competition impacted both Republicanand Democrat-held districts, Republican politicians in adversely affected districts responded by increasing their anti-China rhetoric, while there was no similar difference among Democrats. At the same time, there was no difference between Republican and Democratic messaging on general trade issues. In doing so, Republican legislators were able to support trade liberalization during the Bush and Obama administrations while blaming its negative externalities to their constituents on China.

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Section: Discussionmentioning

confidence: 99%

The partisan divide in U.S. congressional communications after the China shock

Kuk

Seligsohn

Zhang

2022

Economics & Politics

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“…An MNC is defined as exiting if they report in one year but do not report in the subsequent year. Across all foreign MNCs in China, between 2018 and 2019, just over 32,000 foreign firms (11.42 percent) exit the dataset (Vortherms & Zhang, 2021). In the same period, 1,893 U.S. firms (11.45 percent) exit China.…”

Section: Measuring Exit Voice and Loyaltymentioning

confidence: 99%

“…Tariff intensity is our primary indicator for the probable costs facing each MNC as a result of the trade war. Vortherms & Zhang (2021) constructed this variable to capture the intensity of both American tariffs and Chinese tariffs. Tariff intensity takes the count of products subject to tariffs in the firm's industry class divided by the number of industries to account for variation in industry size.…”

Section: Explanatory Variablesmentioning

confidence: 99%

“…H4a: U.S. MNCs with import-export as a business model should be more likely to voice opposition to tariffs in the US. H4b: U.S. MNCs with import-export as a business model should be more likely to exit China during the trade war.4 Research DesignThe analysis relies on a mixed methods research design, drawing on a wide array of data, including a new dataset of Foreign-Invested Enterprises in China (FIEC) Vortherms & Zhang (2021). construct this dataset of China-based foreign-invested enterprises (FIEs) using registration data from the Ministry of Commerce.…”

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confidence: 99%

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In the Middle: American Multinationals in China and Trade War Politics

2022

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Which factors make some American multinational corporations (MNCs) take political action in response to the US–China Trade War and cause others to stay on the sidelines? We identify China-based subsidiaries of US firms to identify firms’ political actions in response to the trade war. We combine data on firms’ tariff exposure, economic actions in China, and political actions in the United States during the trade war. Together these data highlight the divergent strategies with which firms engage. Even though more than 63 percent of MNCs in our sample were adversely impacted by tariffs, only 22 percent voice opposition and 7 percent exit in response to the trade war. Our analysis reveals that US MNCs in China differ in their business models, ownership structure, experience in China, and size of capital investments. These firm-level factors determine the degree to which US MNCs are embedded in China. This in turn shapes how firms perceive political risk and choose from the menu of options to deal with the trade war. Size and age increase voice while joint-venture status decreases it.

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“…Despite Trump's claim that "trade wars are good, and easy to win," neoliberal economists generally believe that it is a poor policy choice as they restrict, rather than liberalize, trade (Amiti, Redding and Weinstein 2019;Gros 1987). Domestic firms in both the initiating and targeted countries in a trade war will have to quickly adjust to the new tariffs and other trade restrictive measures (Vortherms and Zhang 2021). Businesses with alternative export destinations which are less dependent on intermediate inputs or raw materials from the targeted market tend to find it easier to make the necessary adjustments to their supply chains, while others will lose out.…”

Section: Impact Of Trade Warsmentioning

confidence: 99%