Trade Frictions Research Articles

Can stock market always act as a ‘barometer’ for industrial system? An analysis on the connectedness between production and return spillover networks

ABSTRACT This study investigates whether the stock market consistently acts as a ‘barometer’ for the industrial system by employing the complex networks theory. We propose a network of production spillovers for the system and a network of return spillovers for the market and then calculate network similarity to explore the connectedness between them. We acquire the following discoveries. On the one hand, there is a weak connectedness between the network structure of production spillovers and that of return spillovers, with the former and latter showing ‘core-periphery’ and ‘uniformity’ associations, respectively; meanwhile, the effects of production shocks on the system are symmetrical, whereas those of return impacts on the market are asymmetrical, suggesting a weak connectedness between them. These confirm that the ‘barometer’ function of the market exhibits low effectiveness. On the other hand, the major events with a direct impact on the production of enterprises, e.g. Covid-19, US–China Trade Friction, Bank Liquidity Crisis and Strict Financial Regulatory Policies, lead to an increase in the connectedness between the system and the market; conversely, those causing indirect shocks through financing channels, like Stock Market Crash, result in a decrease. These verify that the ‘barometer’ function strengthens amidst some major events while weakens during others.

US sanctions and the reshaping of Chinese innovation strategies

PurposeAs the China–US trade tensions escalate, the implementation of US sanctions has imposed severe restrictions on the innovation resources of Chinese firms. This study introduces the theory of peer effect to investigate whether US sanctions stimulate a homogenization of innovation strategies among Chinese companies in the same industry, thereby giving rise to an innovation peer effect.Design/methodology/approachThis study utilizes a sample of 4,078 A-share listed companies from 2015 to 2021 and employs a multi-period difference-in-differences (DID) model for analysis.FindingsThe findings indicate that US sanctions significantly stimulate innovation inputs among companies in the same industry, but concurrently, they suppress innovation outputs. Moreover, a higher degree of internationalization weakens the promotion of innovation inputs by US sanctions and amplifies the inhibitory effect on innovation outputs. A high proportion of long-term loans offsets the negative impact on innovation outputs, whereas a high proportion of short-term loans diminishes the positive impact on innovation inputs.Research limitations/implicationsThis study elucidates how external shocks impact companies’ innovation capabilities within the same industry, offering a fresh perspective on understanding the influence of China–US trade tensions on innovation among Chinese firms.Practical implicationsChinese firms should view US sanctions-induced technological challenges as opportunities, fostering breakthrough innovations through industry-academia collaboration. Balancing risk and reward is also key when navigating technological innovation and global strategies.Originality/valueThis study comprehensively reflects the impact of the US sanctions on Chinese firm innovation. It lays the foundation for analyzing the transmission mechanism of other trade policies under the framework of trade friction theory.

Impact of Geopolitical and Bilateral Trade Frictions on Global Supply Chain Resilience: Strategies for Multinational Corporations

In the context of the growing interconnectivity of the global economy, the resilience of global supply chains (GSCs) is increasingly contingent upon a range of external factors, including geopolitical developments and the implementation of bilateral trade policies. This study examines the vulnerabilities faced by GSCs in recent years, particularly the challenges they have shown in responding to geopolitical events and bilateral trade frictions. Taking the United Kingdom’s exit from the European Union and the trade war between the United States and China as examples, this study analyzes the significant impacts of these events on GSCs, including issues such as increased operating costs and structural reorganization. This study also proposes strategies for multinational corporations to cope with the complex international environment, such as supply chain diversification and localization of production. It is found that enhancing supply chain resilience is crucial to cope with geopolitical risks and safeguard business continuity, which helps to improve their market competitiveness and ability to cope with unexpected events.

U.S.-China trade frictions and supply chain reconstruction: Perspective from indirect links

U.S.-China trade frictions and supply chain reconstruction: Perspective from indirect links

The Impact of China/US Trade Friction on China's Electronic Product Exports

China and the United States, as leading global powers, have faced ongoing trade disputes. From 2003 to 2005, the U.S. triggered several trade frictions with China, marking a period of significant conflict. In 2018, the Trump administration’s trade war reignited tensions, and these frictions have since evolved alongside shifts in international relations. Recently, the U.S. imposed restrictive measures on Chinese exports, affecting China's electronics sector-a vital component of its high-tech industry and economic growth.This study analyzes data on Chinese electronics exports in the context of these trade tensions, using a Difference-in-Differences (DID) model to assess changes over the past decade. The results show a statistically significant positive impact of U.S.-China trade friction on China’s electronics exports, despite the challenges posed by restrictive U.S. policies. Ultimately, this study emphasizes that while trade conflicts may strain relations, balanced policies and open communication are essential to avoid further escalation. Both countries could benefit from a cooperative approach, recognizing the advantages of mutual trade development.

The Influence of Sino-US Trade Friction on the Export Volume of China's High-tech Products

With the rapid development of economy, witnessing the extraordinary progression of the economy, China has ascended as the second largest economy globally, and the gap with developed countries is getting smaller and smaller. For a long time, there has been a huge trade deficit from China to the United States. The United States provoked trade friction on the grounds of trade protectionism, restricting trade with China, high-tech industries being the focus. Employing the difference-in-differences (DID) methodology, this paper scrutinizes the influence of Sino-US trade frictions on the export value of China's high-tech industries, utilizing the export data of China's high-tech industries to the United States spanning from 2012 to 2022. It is found that after the Sino-US trade friction began, China's exports of high-tech products to the United States have declined significantly, which has caused trade destruction effect and trade deflection effect from China to the United States.

From Shock to Adaptation: Evaluating the Mechanisms of Trade Friction on Firms’ Total Factor Productivity Through the Lens of Digital Transformation

Against the backdrop of frequent global trade conflicts and accelerated competition in the digital economy, we investigated how trade friction shocks affect firms’ total factor productivity (TFP), with a focus on the role of digital transformation. We employed a statistical analysis method based on the multi-period difference-in-differences model with anti-dumping and countervailing measures as quasi-natural experiments to analyze firm-level panel data for Chinese exporters from 2003 to 2016. The results indicate that trade frictions compel export firms to enhance their TFP, while digital transformation further promotes this growth. This main conclusion still holds after a series of tests such as parallel trend checks, placebo tests, and variations in primary variables. A mechanism analysis shows that, in response to trade friction shocks, firms aiming to boost productivity have strategically reallocated internal resources by increasing exports of alternative products and expanding into overseas markets rather than solely relying on innovation. Additionally, digital transformation mitigates the negative effects of trade friction on firm innovation and facilitates faster internal resource reallocation during such challenges. A heterogeneity analysis reveals that digital transformation proves more beneficial for firms that are multi-product, non-state-owned, engaged in general trade, and operating in highly competitive industries. This paper contributes to the understanding of trade friction and productivity at the micro level, offering valuable insights into digital transformation strategies for firms navigating these challenges.

Article: Artificial Intelligence and International Trade from a Latin American Perspective

The article explores the impact of Artificial intelligence (AI) on international trade, focusing on challenges and opportunities for developing countries, particularly in Latin America and the Caribbean (LAC). As AI advances, it creates regulatory challenges and ethical concerns, especially regarding human rights and public morals, which may lead to trade frictions not addressed by current international agreements. AI brings important benefits to countries, such as cost reductions and efficiencies, alongside challenges related to data privacy, competition, and security. For developing countries, adopting AI offers both opportunities and obstacles, with infrastructure and human capital constraints being significant hurdles. The article suggests flexible regulatory approaches to attract investment, promote digital services exports, and ease cross-border data flow. While global trade discussions, particularly within the WTO, are addressing AI-related issues, regional agreements have made more progress. These agreements lack however comprehensive coverage and effective dispute resolution. It is important for LAC countries participating in international negotiations to ensure their interests are represented and to help shape global digital governance standards, enabling them to fully benefit from AI.

The Impact of the China-US Trade Friction on Vietnam’s Chip Industry

The impact of the China-US trade friction on the world has received widespread attention, but there is still insufficient focus on the Vietnamese chip industry. This article analyzes the impact of China-US trade on Vietnam and the background, development, challenges, and measures of Vietnam’s chip industry. This article argues that the China-US trade friction has brought development opportunities to Vietnam’s semiconductor industry. Many semiconductor companies have chosen to open factories and expand production in Vietnam, and Vietnam’s semiconductor market has also expanded. However, Vietnam has problems such as inadequate infrastructure, a weak technological foundation, government policies that are not suitable for foreign investment, and a lack of human resources. Based on this, this article proposes the following suggestions: Vietnam needs to actively seek cooperation with major countries, the government needs to play a coordinating and important investor role, Vietnam needs to strengthen infrastructure construction, Vietnam needs to promote technological innovation, and Vietnam needs to strengthen the training of high-end talents.

The Impact of China: U.S Trade Frictions on Chinese Enterprise Innovation

The Impact of China: U.S Trade Frictions on Chinese Enterprise Innovation

Empirical evidence on the impact of the "new round" of Sino-US trade frictions on China's foreign trade industrial policy and high-quality development.

The global attention on industrial policy's effectiveness spans across various sectors, particularly in international trade where the focus is on enhancing the quality of foreign trade, which is crucial to understand how research hotspots and key issues can synergize. We consider the 2018 "new round" of Sino-US trade friction as an external event and analyze panel data from 2009 to 2022 comprising 1141 Chinese A-share listed enterprises. Our empirical research unequivocally demonstrates that industrial policy has significantly propelled China's foreign trade towards high-quality development by 1.8240%. We conducted rigorous tests for robustness, heterogeneity, and endogeneity. Additionally, our results reveal that inhibitory influences arising from industrial policy on total assets or R&D investment attenuate this promotion effect; There exists a diminishing promotion effect between total assets and R&D investment. Our paper provides valuable insights into understanding their logical relationship while offering guidance for enterprises, markets, and governments in overcoming challenges collectively.

The Impact of the Sino-US Trade War on Studying in the US

This article revolves around the Sino-US trade war that began in 2018, with an increase in enrollment in the US since 2005, driven by Chinese students, during which time the number of Chinese students has increased significantly and high full tuition has provided the necessary funding for American universities. However, with the continuous development of Sino-US trade friction in 2018, the US government adopted a series of policies that led to an increase in the visa rejection rate, and also banned universities from admitting Chinese engineering students and adopted a policy of suppressing Chinese engineering, which also led to the loss of some students and a large part of tuition fees in the United States. This paper uses case analysis and interview analysis to analyze the impact of Sino-US trade friction on foreign students' choice of country and the impact on the life of local foreign students. But in the end, Sino-US trade frictions are mainly due to Sino-US political factors.

New energy products going global: The impact of digital transformation amid trade frictions

New energy industry is the key field in which China has suffered from trade frictions. It remains to be explored whether digital transformation can enhance export resilience and alleviate the negative shock of trade frictions. Based on the export data of new energy products, this paper uses a panel two-way fixed effects model to explores whether digital transformation can alleviate the negative shock of trade frictions on the exports of new energy products. We find that (1) trade frictions lead to an average decrease of 11.45% in the export value of new energy enterprises and an average increase of 0.84% in the probability of exiting the export market. (2) Digital transformation can buffer the negative shock of trade frictions. For enterprises undergoing digital transformation, the negative shock of trade frictions on exports are relatively limited. (3) Mechanism test indicates that digital transformation accelerates the export products conversion and export markets transfer, thereby alleviating the negative shock of trade frictions. From the digital transformation perspective, this paper provides targeted policy implications for enhancing the export resilience of new energy enterprises and forming a sustained buffering mechanism to alleviate trade friction shocks.

How China can promote the outer circular economy under policy uncertainty

This paper utilizes the trade gravity model under the “double-cycle” pattern and selects the trade and export panel data of China in general and 31 provinces and cities located on mainland China specifically to the U.S. from 2008 to 2022 to analyze not only the reasons for the emergence of trade friction shocks between China and the U.S. but also the effects of trade friction shocks on trade between China and the U.S. and the characteristics of each market's export potential. The results of the study reveal that the volume of China's secondary industry GDP and the U.S. economic freedom index play a positive role in promoting China‒U.S. trade, while the volume of the U.S. GDP, the U.S. population, the trade distance between China and the U.S., and the number of U.S.‒China trade barrier notifications impede China‒U.S. trade. Furthermore, on the basis of the measurement of the trade potential equation, the provinces and municipalities of China's mainland are classified into the U.S. trade and export markets, and ways and means are sought to improve the potential of China's trade and exports with the U.S. Moreover, on the basis of the trade potential equation, China in general and the mainland provinces and cities specifically are divided into export markets to the U.S. to find ways to increase China's trade and export potential to the U.S. and promote China's “outward circulation” economy.

Do short-sale constraints inhibit information acquisition? Evidence from regulation SHO

We investigate how short-sale constraints influence investor information acquisition. Leveraging the U.S. Securities and Exchange Commission's (SEC's) Regulation SHO pilot program, we find that relaxed short-sale constraints lead to increased public information acquisition by investors. Investors acquire and process valuable information and utilize it to improve their short-selling decisions after the relaxation of short-sale constraints. We obtain similar findings using a quasi-natural experiment in China that lifted short-sale bans, supporting the external validity of our results. Collectively, our evidence demonstrates that reduced trading frictions promote information acquisition and contribute to price discovery.

Cross-country price dispersion: Retail network or national border?

Why do prices differ among regions without significant trade frictions, such as the euro area? This study examines the impact of a national border on grocery prices in the economically and culturally integrated German–Austrian border region. Based on retail transactions from a large household panel, we analyse price differences of identical products sold within a narrow band along the border. We show that even retailers operating in both countries charge different prices for identical products on each side of the border. Over all products, prices are on average more than 14% higher on the Austrian side. The underlying absolute price differences average to around 20%, but vary over products and time, suggesting limits to arbitrage in cross-border shopping. This study demonstrates that even in highly integrated areas, national borders continue to matter for retail pricing.

The Effect of Trade Policy Uncertainty on Green Technology Innovation: Evidence from China’s Enterprises

Promoting green technology innovation is essential for sustainable development and the transition to a low-carbon economy. Using data from listed manufacturing companies in China from 2000 to 2020, this paper takes the establishment of permanent normal trade relations with the United States after China’s accession to the WTO as a quasi-natural experiment and uses the difference-in-differences method to study the impact of the decline in trade policy uncertainty on firms’ green technology innovation. The results show the following: (1) Reduced trade policy uncertainty significantly enhances green technology innovation in firms. (2) Further research finds that the decline in trade policy uncertainty mainly promotes the level of the green technology innovation of firms by alleviating financing constraints faced by firms and intensifying market competition. (3) A heterogeneity analysis reveals that the impact is more pronounced in firms with lower capital intensity, higher growth, export firms, and firms exporting to the United States. This study offers micro-level empirical evidence from China on the economic outcomes of external trade policy changes from the perspective of firms’ green technology innovation and provides insights into how the government should respond to the risks of external trade frictions and improve firms’ sustainable development in the future.

Does Sino-US trade friction hurt corporate resilience? Evidence from Chinese enterprises

As the world’s largest foreign trading country, China has faced numerous trade investigations in recent years. We select panel data from China’s manufacturing A-share listed companies from 2012 to 2021 to explore the impact of Sino-US trade friction on corporate resilience and its internal mechanisms. The results show that: (1) The intensification of Sino-US trade friction significantly reduces the resilience of Chinese microenterprises. This conclusion remains robust after a series of tests using PSM-DID and other methods. (2) Heterogeneity analysis shows that the resilience of export enterprises, high-tech enterprises, and enterprises in developed regions are more severely impacted by Sino-US trade friction. (3) Mechanism tests reveal that Sino-US trade friction damages enterprise resilience mainly through three channels: damaging the spirit of entrepreneurs, reducing internal operating profits, and exacerbating external financing constraints. The results provide theoretical and empirical support for understanding the survival effects of microeconomic entities under the impact of Sino-US trade friction.

Research On the Impact of China's Industrial Chain Security Under US-China Trade Friction Based on DID Methodology

Research On the Impact of China's Industrial Chain Security Under US-China Trade Friction Based on DID Methodology

A multinational firm’s global manufacturing location and outsourcing strategies

Due to rising labor costs in China and trade friction, many multinational firms (MNFs) consider moving manufacturing outside China to Southeast Asian Countries. Based on observations in real world, we build a three-tier supply chain model consisting of one component supplier, two contract manufacturers (CMs), an MNF, and a local original equipment manufacturer (OEM). The MNF monopolizes the market in country 1 (e.g., U.S.), but competes in country 2 (e.g., China) with the local OEM. The component supplier and one CM are located in country 2, and the other CM is located in country 3 (e.g., a country in Southeast Asia). We investigate the MNF’s global manufacturing location and procurement outsourcing strategies with considerations of tariffs and market environments. Currently, the MNF outsources its manufacturing to the CM in country 2, and decides whether to continue the cooperation with the current CM or develop a new CM in country 3. The MNF also considers whether to outsource its component procurement to the corresponding CM. Our study reveals that the MNF’s optimal strategy depends on the relative market sizes, the fixed cost of developing a new CM, as well as the manufacturing cost and tariff disadvantages in country 2. Interestingly, we find that the tariff disadvantage in country 2 does not always motivate the MNF to cooperate with the CM in country 3. Instead, an appropriate tariff may be beneficial to the MNF that manufactures in country 2. In addition, the MNF’s preferred procurement strategy is related to its manufacturing location. When cooperating with the CM in country 2, the MNF would switch from direct procurement to outsourced procurement as the market size of country 1 increases.