Publication in "Finance Research Letters"
Economists at Paderborn University have analysed the impact of tariffs announced by Donald Trump during his first presidency on the share prices of more than 1,000 US companies. The results show that this led to a decline in average share prices - in other words, the companies lost value on the stock market. The negative wealth effects occurred regardless of whether the US government imposed tariffs to protect domestic industries or whether other countries announced retaliatory tariffs against the US. The negative effects were primarily due to tariff announcements affecting China. The results have now been published in the journal "Finance Research Letters".
Protective tariffs can also harm domestic companies
For their empirical study, Prof Dr André Uhde, Dr Sascha Wengerek and Dr Benjamin Hippert examined 4,624 tariff announcements in the period from January 2017 to January 2021. The strength of the negative share price reactions depended on individual sector-, customs-, trade- and company-specific characteristics. "The results suggest that the renewed tariff announcements at the beginning of the second Trump presidency will have a long-term negative impact on the US equity market. In general, governments must recognise in future trade policy decisions that protective tariffs can also unintentionally harm domestic companies in the short term, especially those with cross-border trade relations or from high-tech sectors," explains Prof. Uhde, Chair of Business Administration, in particular Banking and Finance, at Paderborn University.
The researchers advise companies to be more flexible: "They should prepare for an increasingly protectionist and volatile trading environment. This calls for business models that are largely resistant to political uncertainties. Future risk management strategies should therefore also include geopolitical analyses."
