The Effect of U.S.-China TradeWar on the Performance of U.S.-listed Chinese Firms

Abstract

While numerous corporations seek high-quality capital in overseas markets, very little is known about the political risks embedded in this new wave of financial globalization. This research utilizes the trade dispute between the U.S. and China during 2017-2020 to examine how political risks harm the stock prices of firms listed in advanced stock markets. Using a difference-in-differences (DiD) analysis, this paper documents the negative impact of the trade war President Trump led which affects publicly listed Chinese stocks in the U.S. stock market. The findings demonstrate a salient effect of political risks, showing that the U.S. tariff policy shocks have a significant negative impact on the U.S.-listed Chinese stocks compared with the S&P 500 companies when policies have specific tariff target, leading to a 4.1%-12.6% underperformance of U.S.-listed Chinese stocks. However, this study does not find that the phase one deal, which de-escalates the situation, has a positive impact on the stock price of U.S.-listed Chinese firms.