The impacts of the China–US trade war on China’s trade and greenfield investment

Abstract

We assess the impacts of the China–US trade war on the bidirectional trade and investment flows of China. We find that China’s exports and imports both dropped sharply after the trade war began. In terms of investment flows, we find that China’s greenfield investment in the US faltered in the face of the increasing trade friction, but the impact of the trade war on the US’s greenfield investment in China is ambiguous. In addition, the trade friction only impeded the export volumes of China and had an insignificant impact on the export prices. In contrast, both the import volumes and prices for China decreased.

Keywords:

• China–US trade war
• Chinese economy
• trade flows
• greenfield investment flows

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The treatment group consists of direct investment from the US in China, and the control group includes greenfield investment from other countries except the US.

2 Specifically, ${\mathit{\text{post}}}_t$ equals 1 in and after July 2018, and 0 otherwise. As noticed, we do not categorise the first several rounds of tariff hikes before July 2018 as part of the China–US trade conflict. The main reason is that the tariffs implemented by the US in February and March of 2018 were targeted not only at China but also at other trading partners. Incidentally, the value of goods affected by China’s retaliatory tariffs in April was low, with barely US$30 billion. However, starting in July 2018, China and the US increased their stakes sharply, and then the moderate trade friction turned into a bilateral trade war.

Additional information

Funding

The authors acknowledge financial support from the National Natural Science Foundation of China [Grant Nos. 72341008, 72341013, and 72373030], the National Social Science Fund of China [Grant Nos. 21&ZD075 and 23VRC015], and the Fudan University Exchange Programme Scholarship for Humanities and Social Sciences (HSS) Doctoral Students.