Firm-level exposure to trade policy shocks: A multidimensional measurement approach

We propose a firm-level measure of exposure to trade policy shifts that combines characteristics (tradability of goods, share of output exported and corporate risk disclosures) with information from stock returns. We show that the measure reliably captures out-of-sample differences in price responses and sentiment related to trade tensions, both in US and international data. Differences across firms are economically important with return effects of 140 bp around tariff announcements. We argue that such a multidimensional measure is a useful tool for future research on trade policy risk.