Outward direct investment as a shelter from external trade policy shocks: Firm-level investigation of the US–China trade war

This study examines the effects of external trade policy shock from the US–China trade war on firm value. Using a merged data set of Chinese-listed companies, our empirical results reveal that Chinese firms conducting outward direct investment in the US have significantly higher stock returns around the date of the outbreak of the trade war as compared with the lower returns of exporting firms. This indicates a sheltering effect of pre-existing outward direct investment activities. Moreover, we find that the sheltering effect is more pronounced for production-oriented projects, high tech industries and tariff-targeted sectors, while it is weaker for state-owned companies.