How political conflicts distort bilateral trade: Firm-level evidence from China

Abstract We examine how political conflicts affect trade, using both the Goldstein score that scales all daily worldwide and firm-country-product level data of Chinese imports. find reduce imports in general. Specifically, (i) State-owned enterprises (SOEs) are most reduced, effects mostly fall on intermediate goods while not so much capital goods; (ii) foreign-invested (FIEs) less negatively affected, because their trade is processing, which affected by than ordinary trade. These results obtained via mechanisms mode (processing vs. ordinary), variations broad economic categories (BEC) import boycotts export controls.