The impact of Sino–US trade friction on the performance of China's textile and apparel industry

• Published date: 01 August 2022
• Author: Maosheng Ye,Jim H. Shen,Eric Golson,Chien‐Chiang Lee,Yuting Li
• Date: 01 August 2022
• DOI: http://doi.org/10.1111/infi.12413

Received: 15 March 2021

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Accepted: 26 April 2022

DOI: 10.1111/infi.12413

ORIGINAL ARTICLE

The impact of Sino–US trade friction on

the performance of China's textile and

apparel industry

Maosheng Ye

1

|Jim H. Shen

2,3,4

|Eric Golson

5

|

Chien‐Chiang Lee

6

|Yuting Li

7

1

Center for Industrial Economic

Research, School of Economics and

Management, Wuhan Textile University,

Wuhan, China

2

Department of Applied Economics,

School of Management, Fudan

University, Shanghai, China

3

The Growth Lab, Center for

International Development, Harvard

Kennedy School, Harvard University,

Cambridge, Massachusetts, USA

4

Core China Research Center, School of

Economics and Business, University of

Navarra, Pamplona, Spain

5

Department of Economics, University of

Surrey, Guildford, UK

6

School of Economics and Management,

Nanchang University, Nanchang, China

7

Institute of New Structural Economics,

Peking University, Beijing, China

Correspondence

Chien‐Chiang Lee, School of Economics

and Management, Nanchang University,

Nanchang, Jiangxi, China.

Email: cclee6101@gmail.com

Funding information

Chinese National Social Science

Foundation, Grant/Award Number:

21BTJ028

Abstract

This study applies the event‐analysis method and takes

three Chinese listed textile and apparel companies that

are representative of the upstream, midstream, and

downstream of the textile value chain as research

objects. By tracking the Baidu index trend of the

keyword “trade war”to identify the ‘time window’for

each iconic event, we apply the autoregressive distrib-

uted lag approach to examine the impact of important

landmark events on the performance of these compa-

nies during the period of Sino–US trade friction in

2018. We find that the impact diminished over time.

Additionally, compared with upstream companies,

midstream and downstream companies were hurt

more. However, the risks were generally controllable.

KEYWORDS

Baidu index, event analysis, Sino–US trade friction, stock

returns, textile and apparel industry

JEL CLASSIFICATION

C58, F13, L67

International Finance. 2022;25:151–166. wileyonlinelibrary.com/journal/infi © 2022 John Wiley & Sons Ltd.

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1|INTRODUCTION

Following the opening up of China's economy, particularly since joining the World Trade

Organization (WTO) in 2001, the economic and trade cooperation between China and the

United States of America (US) under the framework of the global multilateral trading system

has greatly expanded such that these countries are now each other's largest trading partner (Cai

et al., 2022; Shen et al., 2022; Wu et al., 2022). However, recent trade friction has come to

dominate Chinese‐American economic and political relations due to the deepening of the

Sino–US economic and trade relationship, especially since the inauguration of President

Donald Trump in 2017. The US and China have faced a series of issues, such as trade deficits,

intellectual property protection, excess capacity, and industrial policies, and tariffs have been

used as one form of retaliation. In March 2018, the US unilaterally invoked Article 301 of the

US Trade Act of 1974 to impose punitive tariffs on Chinese imports worth up to $50 billion,

increased the tariff rates on goods imported from China worth up to $200 billion in May 2019,

and increased the tariff rate on export goods to 25% in September 2019. On September 1, 2019,

the Trump administration then announced the imposition of a 10% tariff on Chinese goods

with a remaining value of $300 billion, with the added threat of raising tariffs to 25% if

conditions were not met.

In the past two decades, the US has been the largest single market for textile and apparel

imports from China. Following its peak in 2014, the total volume of China's textile and apparel

exports began to fall, but while exports to other markets faltered, China increased its

dependence on textile and apparel exports to the US market. In 2017, China's textile (SITC 65)

and apparel (SITC 84) goods exported to the US accounted for 11.2% and 21% of its total

exports, respectively, representing an increase of 1.2% and 3.1% compared with 2014,

respectively, and indicating that demand in the US market was playing an important role in the

growth of China's textile and apparel exports. Even in 2018, when the Trump administration

officially launched the Sino–US trade war, China's textile and apparel exports to the US

maintained an annual growth rate of 8%, which was much faster than China's growth in

exports to traditional markets such as the European Union (EU) and Japan.

In terms of the product structure, the main products imported by the US from China have

been clothing and home textiles, which are downstream in the textile industry. In 2008, the

total clothing and home textiles imported by the US from China amounted to $31.4 billion and

$4.82 billion, respectively, accounting for 34.1% and 49.2% of the US market share, respectively.

However, due to the small scale of the US domestic textile processing industry, the dependence

on the import of upstream products of the textile industry, such as yarn and fabrics, was

relatively low. In general, the impact of trade friction on China's textile and apparel industry

was mainly experienced by downstream products.

The increasing interdependence of the US and China in the textile and apparel industry

resembles two sides of the same coin. For the US, it is difficult for third‐party countries to

completely replace the significant industry chain advantages and enormous market size of

China's textile and apparel industry. For China, there is no other international market like the

US, which has a massive import demand for textile and apparel products. Therefore, the

complementary advantages of the textile and apparel industries of the two countries are very

obvious, making it easy to form a long‐term and stable cooperative relationship (Zhang

et al., 2021).

With the increasingly tense economic and trade relations between China and the US, the

escalation of the Sino–US trade war has inevitably increased the pressure on the cost of China's

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