The Impact of United States of America-China Trade War on Market Capitalization of Emerging Economies

Abstract

This article evaluates the impact of United States of America (USA)–China trade war on market capitalization of emerging economies. A major determinant of growth in emerging economies is market capitalization, which is the share price times the number of shares outstanding for listed domestic companies. Empirical literature suggests that the development of stock market hence market capitalization is affected by macroeconomic variables such as interest rate, exchange rate, gross domestic product, current account and money supply. Using a panel vector error correction model with USA tariffs as a proxy for trade war, this article proves that USA–China trade war has a negative impact on market capitalization of the emerging markets. Interest rates, exchange rates and trade balance have a positive impact on market capitalization of emerging markets. This article recommends that emerging economies manage interest rates, exchange rates and trade balances in order to offset the negative impact of the USA–China trade war.