The Impact of the US-China Trade War on Japanese Multinational Corporations

Using detailed data on Japanese multinational corporations (MNCs), we examine the impact of the US-China trade war on MNC activities and market values. We first use quarterly data on the foreign affiliates of these MNCs and show that, relative to affiliates in other Asian countries, Chinese affiliates, especially those with high exposure to trade with North America (NA), in general see a decline in sales since the trade war began. This decline is largely driven by a drop in sales to third countries. Second, we use data on listed Japanese firms and find that, relative to other listed firms, firms exposed to China-NA trade see a decline in stock prices after Trump proposed tariffs on $50 billion of Chinese imports on Mar 22, 2018. This decline is larger for firms whose Chinese affiliates rely more on inputs from Japan. We see this as evidence that the negative impact of the trade war propagates through the global value chain.