Research Papers

Export Market Size and Trade Shocks: Evidence for Chinese Firms from U.S. Tariff Changes. (Job Market Paper)

Abstract: This paper analyzes the influence of U.S. import tariffs on the export value of Chinese firms and how it is different among firms with different market size outside of the united states. I develop a model assuming fixed capital for each firm, and fixed cost of entering into new markets to show that for firms exported to more diversified markets, the negative influence of U.S. tariffs on total export value is lower, as they can reallocate their exports from the U.S. market to the other markets. I empirically test these hypothesis using Chinese Customs Trade Statistics (CCTS) from 2000-2013, a time period that encompasses wide variation in U.S tariffs imposing toward China. I show there is a negative relationship between U.S. tariffs and the export value to USA, and this effect is larger for firms with larger market share in countries outside of the united states. USA tariffs have a positive influence on the export value to non-U.S. markets, and this influence is larger for firms with larger markets outside of the united states. Together, these results indicate that more diversified markets will allow firms to mitigate the negative influence of trade shocks. I also estimate the parameters in the model using CCTS 2013 and use estimates to evaluate the impact of 2018-2020 tariff increases. I predict how firms with different market size would choose their markets and decide their export value under the influence of tariff increase during the trade war.