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We study the effects of the US-China trade war on Chinese firms' investment using the detailed quarterly financial data of Chinese listed firms merged with firm-level Chinese customs data. We construct the firm-level measures of direct trade exposure and the financial measures of indirect exposures to the US-China trade tension using firms' equity responses during the trade war escalation periods. We document that the trade war reduced Chinese firms' investment by two percent. In particular, we find significant heterogeneous firms' responses to the trade war, depending on their firm characteristics. Chinese firms that are more dependent on exports to the US have lower stock returns; large firms and state-owned firms suffer more compared to small firms and private-owned ones.

The Impact of the US-China Trade War on Chinese Firms' Investment