- A new report by the New York Fed estimated the US-China trade war has erased $US1.7 trillion in American firms’ market value since it began in 2018.
- The global trade conflict cut US investment growth by 0.3 percentage points by the end of 2019 and will slash another 1.6 points by the end of 2020, the report’s authors projected.
- Previous Fed research found that US firms “bore virtually all of the cost” of the new tariffs, eating away at internal investments and earnings.
- One-day returns on the days of trade-war announcements totaled a 8.9% decline for stocks in the Fed’s sample.
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The two-year trade war between the US and China has slashed $US1.7 trillion from American companies’ market cap, the Federal Reserve Bank of New York said in a Thursday report.
The new study, penned by economists Mary Amiti, Sang Hoon Kong, and David Weinstein, found that the global trade conflict cut US investment growth by 0.3 percentage points by the end of 2019 and will slash another 1.6 percentage points by the end of the year.
One-day returns on the days of trade-war announcements totaled -8.9%, according to the central bank’s research. Even adjusting for bounce-backs over a longer trading window, the economists’ sample still sat 2.9% lower after seven key trade-war escalations.
President Donald Trump kicked off the trade war in March 2018, placing tariffs on steel and aluminium imports from China. While a phase-one deal was made just before the coronavirus pandemic, it did little to roll back the hundreds of billions of dollars in duties between the two countries.
Previous research found US companies “bore virtually all the cost” of new import tariffs, diverting cash away from earnings and investment. The following tit-for-tat escalations “are likely to have adversely affected investment by reducing expected returns” and led companies to incur supply-chain-disruption costs, the Fed said.
Firms with exposure to China faced a double-whammy, the economists added, as they sustained profit hits from China’s own duties.
The report found 46% of 3,000 sampled US companies were exposed to China through importing, exporting, or selling through subsidiaries. The average firm took in 2.3% of its sales from China.
The trade war also seems to have contributed to the slowing of China’s economy over the last two years, according to to the report. The country’s weakening growth and non-tariff retaliation against US companies “likely diminished the returns firms made on investments in the Chinese market.”
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