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Firm Finances and Responses to Trade Liberalization: Evidence from U.S. Tariffs on China

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  • Avishai Schiff

Abstract

This paper examines the relationship between a firm�s finances and its response to trade liberalization. Using a landmark change in U.S. tariff policy vis-�-vis Chinese imports and micro level data from the U.S. Census Bureau, I find larger manufacturing job losses in better capitalized firms - those with less leverage and more cash on hand. The effects concentrate in industries where weaker balance sheets are likely to lead to collateral and other borrowing constraints, helping rule out alternative explanations. Finally, domestic manufacturing job losses are not accompanied by greater reductions in sales or aggregate employment, but better capitalized firms do exhibit reduced input costs and increased productivity. These findings point to offshoring as the predominant firm response to trade liberalization and suggest a role for financial capacity in facilitating offshoring investments.

Suggested Citation

  • Avishai Schiff, 2021. "Firm Finances and Responses to Trade Liberalization: Evidence from U.S. Tariffs on China," Working Papers 21-37, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:21-37
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    References listed on IDEAS

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    1. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    2. Monarch, Ryan & Park, Jooyoun & Sivadasan, Jagadeesh, 2017. "Domestic gains from offshoring? Evidence from TAA-linked U.S. microdata," Journal of International Economics, Elsevier, vol. 105(C), pages 150-173.
    3. Justin R. Pierce & Peter K. Schott, 2016. "The Surprisingly Swift Decline of US Manufacturing Employment," American Economic Review, American Economic Association, vol. 106(7), pages 1632-1662, July.
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