Heterogeneous firm-level responses to the US 2018 tariff announcement

This study examines the impact of the $60 billion tariff announcement of the US government on the Chinese exporting firms. In particular, it focuses on the firms whose revenues are highly dependent on the US economy.

This study uses an experimental analysis and the event study methodology. The sample includes firms listed in mainland China and Hong Kong Stock Exchanges that have the highest revenues from exporting to the USA. The data are obtained from China Stock Market and Accounting Research (CSMAR) and DataStream.

The authors find that the tariff announcement has significantly negative impacts on stock performance both before and after the announcement, and the impacts are heterogeneous across all sample firms. For A shares listed in Mainland China, firms with more revenues from the US experience greater price drops on the announcement day, regardless of being in the targeted industry or not. But such finding is absent from H shares listed in Hong Kong. The authors also find that for all the firms, greater pricing power can alleviate the impacts of the tariff announcement.

The results provide implications to investors, policymakers and regulators on the further US-China cooperation in the future.

This is the first study documenting the heterogeneity of the impact of the tariff announcement and thus contributes to the prosperous studies on the varied firm-level responses in the Chinese stock market, and to the burgeoning literature by filling the gap of the financial market responses to the protectionist policy announcement.