The Effect of the U.S.-China Trade War on U.S. Investment

48 Pages Posted: 8 May 2020

See all articles by Mary Amiti

Mary Amiti

Federal Reserve Bank of New York

Sang Hoon Kong

Columbia University

David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2020

Abstract

We develop a new method of quantifying the impact of policy announcements on investment rates that makes use of stock market data. By estimating the effect of U.S.-China tariff announcements on aggregate returns and the differential returns of firms exposed to China, we identify their effect on treated and untreated firms. We show theoretically and empirically that estimates of policy-induced stock-market declines imply lower returns to capital, which lowers investment rates. We estimate that the tariff actions through 2018 and 2019 will lower the investment growth rate of listed U.S. companies by 1.9 percentage points by the end of 2020.

Keywords: adjustment costs, Event studies, protection

JEL Classification: E22, F13, F14

Suggested Citation

Amiti, Mary and Kong, Sang Hoon and Weinstein, David E., The Effect of the U.S.-China Trade War on U.S. Investment (May 2020). CEPR Discussion Paper No. DP14691, Available at SSRN: https://ssrn.com/abstract=3594325

Mary Amiti (Contact Author)

Federal Reserve Bank of New York ( email )

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Sang Hoon Kong

Columbia University ( email )

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David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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