Multi-product exporters in US–China trade war

Abstract

ABSTRACT This study explores empirically how Chinese multi-product firms adjust their exports in response to the U.S. tariff escalations during the US–China trade war, using firm-product-level customs trade data from China. We find strong evidence for a new phenomenon we call the within-firm cross-product chilling effect, whereby an additional tariff targeting some of the firm’s products sold in the destination market is associated with reduced sales of its other untargeted products in that market. The comparison between firm-product-level and product-level analysis suggests that ignoring the within-firm chilling effect would result in a severe underestimation of the tariff effects. Moreover, the chilling effect is more prominent for products that are more important for a firm’s overall sales to the U.S. and that are highly reliant on the U.S. market. We also observe a ‘complete tariff pass-through’ phenomenon at firm-product level, which complements the product-level evidence in previous related studies.