The US-China trade war has erased $1.7 trillion from US companies market value, Fed report says
Source
American Shipper
Post Date
06/04/2020
The two-year trade war between the US and China has slashed $1.7 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 of 2019 and will slash another 1.6 percentage points by the of the year.
One-day returns on the days of trade-war announcements totaled -8.9%, according to the central banks 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 aluminum 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 Chinas 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 Chinas economy over the last two years, according to to the report. The countrys weakening growth and non-tariff retaliation against US companies "likely diminished the returns firms made on investments in the Chinese market."
