DP14691 The Effect of the U.S.-China Trade War on U.S. Investment

Author(s):	Mary Amiti, Sang Hoon Kong, David E. Weinstein
Publication Date:	May 2020
Keyword(s):	adjustment costs, Event studies, protection
JEL(s):	E22, F13, F14
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14691

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.