Trade networks and firm value: Evidence from the U.S.-China trade war

Yi Huang; Chen Lin; Sibo Liu; Heiwai Tang

doi:10.1016/j.jinteco.2023.103811

Trade networks and firm value: Evidence from the U.S.-China trade war

Yi Huang
, Chen Lin
, Sibo Liu
, Heiwai Tang^*

^*Corresponding author for this work

Department of Accountancy, Economics and Finance

Research output: Contribution to journal › Journal article › peer-review

90 Citations (Scopus)

Abstract

We study the financial implications of the 2018–2019 U.S.-China trade war for global supply chains. Around the dates when higher tariffs are announced, U.S. firms that depend more on exports to and imports from China experience larger declines in market value, with the negative effect spilling over to the affected firms' suppliers and customers through production networks. The trade war effect is mainly concentrated among U.S. firms that sell to Chinese customers with low R&D intensity or outsource to Chinese differentiated input suppliers. We also exploit the within-firm variation in tariff exposure according to the detailed product lists and conduct a reverse experiment based on the 2019 trade talks. To explain the findings, we propose a theoretical model that highlights how complex trade structures shape shareholder wealth.

Original language	English
Article number	103811
Number of pages	41
Journal	Journal of International Economics
Volume	145
Early online date	25 Aug 2023
DOIs	https://doi.org/10.1016/j.jinteco.2023.103811
Publication status	Published - Nov 2023

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 10 Reduced Inequalities
SDG 17 Partnerships for the Goals

User-Defined Keywords

Event study
Firm value
Global value chains
Offshoring
Trade policy

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10.1016/j.jinteco.2023.103811

Cite this

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title = "Trade networks and firm value: Evidence from the U.S.-China trade war",

abstract = "We study the financial implications of the 2018–2019 U.S.-China trade war for global supply chains. Around the dates when higher tariffs are announced, U.S. firms that depend more on exports to and imports from China experience larger declines in market value, with the negative effect spilling over to the affected firms' suppliers and customers through production networks. The trade war effect is mainly concentrated among U.S. firms that sell to Chinese customers with low R\&D intensity or outsource to Chinese differentiated input suppliers. We also exploit the within-firm variation in tariff exposure according to the detailed product lists and conduct a reverse experiment based on the 2019 trade talks. To explain the findings, we propose a theoretical model that highlights how complex trade structures shape shareholder wealth.",

keywords = "Event study, Firm value, Global value chains, Offshoring, Trade policy",

author = "Yi Huang and Chen Lin and Sibo Liu and Heiwai Tang",

note = "Funding Information: We thank the editor, Jonathan Vogel, two anonymous reviewers, Richard Baldwin, Ben Charoenwong, Davin Chor, Peng Lin, Amit Khandelwal, Robert Koopman, Samuel Kortum, Wenlan Qian, Mark Rosenzweig, Julien Sauvagnat, Jiao Shi, Alexander Wagner, Pengfei Wang, Michael Weber, Shang-Jin Wei, Wei Xiong, Yifan Zhang, and Xiaodong Zhu; the participants at the Asia Pacific Trade Seminars 2019 and the Bank of Canada–Tsinghua PBCSF–University of Toronto Conference on the Chinese Economy; and members of the China Securities Regulatory Commission (CSRC), the China Institute of Finance and Capital Markets, the Graduate Institute of Geneva, the HSBC School of Business of Peking University, Jinan University, Lingnan University, the LSE-Tsinghua Workshop, the NBER Chinese Economy Workshop, Southwest University of Finance and Economics, the International Monetary Fund, the University of Notre Dame, and the WTO-Geneva Trade and Development Workshop for their Lin acknowledges the financial support from the Major Program of the National Science Foundation of China (72192841). Liu acknowledges the financial support from the Research Grants Council of Hong Kong Early Career Scheme (23601319). Publisher Copyright: {\textcopyright} 2023 Elsevier B.V.",

year = "2023",

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doi = "10.1016/j.jinteco.2023.103811",

language = "English",

volume = "145",

journal = "Journal of International Economics",

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AU - Huang, Yi

AU - Lin, Chen

AU - Liu, Sibo

AU - Tang, Heiwai

N1 - Funding Information: We thank the editor, Jonathan Vogel, two anonymous reviewers, Richard Baldwin, Ben Charoenwong, Davin Chor, Peng Lin, Amit Khandelwal, Robert Koopman, Samuel Kortum, Wenlan Qian, Mark Rosenzweig, Julien Sauvagnat, Jiao Shi, Alexander Wagner, Pengfei Wang, Michael Weber, Shang-Jin Wei, Wei Xiong, Yifan Zhang, and Xiaodong Zhu; the participants at the Asia Pacific Trade Seminars 2019 and the Bank of Canada–Tsinghua PBCSF–University of Toronto Conference on the Chinese Economy; and members of the China Securities Regulatory Commission (CSRC), the China Institute of Finance and Capital Markets, the Graduate Institute of Geneva, the HSBC School of Business of Peking University, Jinan University, Lingnan University, the LSE-Tsinghua Workshop, the NBER Chinese Economy Workshop, Southwest University of Finance and Economics, the International Monetary Fund, the University of Notre Dame, and the WTO-Geneva Trade and Development Workshop for their Lin acknowledges the financial support from the Major Program of the National Science Foundation of China (72192841). Liu acknowledges the financial support from the Research Grants Council of Hong Kong Early Career Scheme (23601319). Publisher Copyright: © 2023 Elsevier B.V.

PY - 2023/11

Y1 - 2023/11

N2 - We study the financial implications of the 2018–2019 U.S.-China trade war for global supply chains. Around the dates when higher tariffs are announced, U.S. firms that depend more on exports to and imports from China experience larger declines in market value, with the negative effect spilling over to the affected firms' suppliers and customers through production networks. The trade war effect is mainly concentrated among U.S. firms that sell to Chinese customers with low R&D intensity or outsource to Chinese differentiated input suppliers. We also exploit the within-firm variation in tariff exposure according to the detailed product lists and conduct a reverse experiment based on the 2019 trade talks. To explain the findings, we propose a theoretical model that highlights how complex trade structures shape shareholder wealth.

AB - We study the financial implications of the 2018–2019 U.S.-China trade war for global supply chains. Around the dates when higher tariffs are announced, U.S. firms that depend more on exports to and imports from China experience larger declines in market value, with the negative effect spilling over to the affected firms' suppliers and customers through production networks. The trade war effect is mainly concentrated among U.S. firms that sell to Chinese customers with low R&D intensity or outsource to Chinese differentiated input suppliers. We also exploit the within-firm variation in tariff exposure according to the detailed product lists and conduct a reverse experiment based on the 2019 trade talks. To explain the findings, we propose a theoretical model that highlights how complex trade structures shape shareholder wealth.

KW - Event study

KW - Firm value

KW - Global value chains

KW - Offshoring

KW - Trade policy

UR - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3504602

UR - https://cepr.org/publications/dp14173

UR - https://www.scopus.com/pages/publications/85171806244

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DO - 10.1016/j.jinteco.2023.103811

M3 - Journal article

SN - 0022-1996

VL - 145

JO - Journal of International Economics

JF - Journal of International Economics

M1 - 103811

ER -

Trade networks and firm value: Evidence from the U.S.-China trade war

Abstract

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