Economic Implications of the U.S.-Sino Trade War for China’s Financial Market

Abstract

The US-China trade war is a signifi cant event with far – reaching consequences. It affects not only the bilateral economic relationship but also the global economic structure. It has brought about substantial uncertainties, especially in the financial area. The objective of this paper is to explore the economic impacts of the US-China trade war on China’s financial market by a multi-faceted methodology anchored in the World Bank’s “Global Financial Development Database.” This approach enables an in-depth examination of three crucial dimensions: financial market access, depth, and efficiency. The trade war has adversely affected the revenues and profi ts of large corporations, as evidenced by the increase in trade value and market capitalization for the firms outside the top 10 from 2018 to 2019. The US-China trade war has induced considerable fluctuations in the returns of Chinese equities, especially within export-driven industries, which experienced negative cumulative average abnormal returns following the imposition of tariffs. Nonetheless, the effects vary depending on sector – specific characteristics and China’s strategic countermeasures. The financial market depth index shows that the trade war has led to the progress in China’s financial policies and technological reforms. At the same time, through comprehensive reforms, the financial markets have shown their strength and mitigated the negative impacts of trade disputes. Moreover, the conflict has changed investors’ perception of the macro – economic environment, affecting non – exporting sectors like banking, thus highlighting the far – reaching implications of international trade disputes.