From conflict to creativity: US-China trade war and Chinese corporate innovation

Enterprises worldwide are facing the shock of anti-globalization, but there is little literature exploring the impact of the trade war on corporate innovation. In this paper, we first build a theoretical model to analyze the impact of the trade war on innovation. Then, we use detailed patent data of Chinese listed companies between 2015 and 2021, and find that the trade war does not affect corporate R&D expenditure, but significantly increases their patent output and patent quality. These results still hold after a battery of endogeneity tests. Next, we reveal that the Chinese government plays an important role in promoting corporate innovation during the trade war. Moreover, the trade war does not lead firms to shift their innovation pathways but increases high-end patents and collaborative innovation. Finally, heterogeneity analyses show that the trade war leads to more patents and patent citations for firms with higher economic policy uncertainty perception, less severe management myopia, and more intermediate goods import, but it has no impact on the R&D expenditures of any type of firms.