Trade War and Governmental Intervention

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Abstract

The literature on the trade war mainly focuses on the effect of tariffs on firms' competitiveness. It has been shown that Chinese exporting firms were negatively impacted with a low possibility of reallocating the destination of exports. Nevertheless, the economic literature on Chinese government behavior during the period is scant. We gauge how national and local governments behave to protect their industries in China. We focus our analysis on two channels: subsidies and procurement. We show large increase in grant toward impacted firms. Furthermore, local governments tend to be more conservative and protect massively firms located in their jurisdiction.