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

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  • Amiti, Mary
  • Kong, Sang Hoon
  • Weinstein, David E.

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.

Suggested Citation

  • Amiti, Mary & Kong, Sang Hoon & Weinstein, David E., 2020. "The Effect of the U.S.-China Trade War on U.S. Investment," CEPR Discussion Papers 14691, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14691
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    Cited by:

    1. Kris James Mitchener & Kirsten Wandschneider & Kevin Hjortshøj O'Rourke, 2021. "The Smoot-Hawley Trade War," CESifo Working Paper Series 8966, CESifo.

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    More about this item

    Keywords

    adjustment costs; Event studies; protection;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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