The Political Economy of Trade Deliberalization: A Social Identity Analysis of the US-China Trade War

Abstract

This paper theoretically and empirically studies the political economy consequences of de-globalization in the context of the US-China trade war. I present a model of trade and social identity, which shows how Chinese citizens in high-trade regions may shift their identities from US-friendly to nationalistic in response to the trade war. Exploiting variation in US-specific trade penetration across Chinese regions and the timing of the trade war, I find that the trade war had a larger negative impact on trust in Americans for Chinese citizens living in regions with a higher level of ex ante US trade exposure, and a larger positive impact on nationalistic sentiment, consistent with the theory. I also provide supporting evidence on the impacts of the trade war on the economic status of social groups, and the information search behavior of differentially affected groups.