US-China Trade Conflict, Capital Flows, and the Dynamics of the US Stock

Abstract

With the announcement of the list of tariffed goods on April 4, 2018, the US government announced that it would impose 25% tariffs on 1,330 items imported from China to the US, with a total value of $50 billion, and the trade war which has the largest size in history began, with five moves to impose tariffs on each other before and after the period. This paper focuses on the changes in four key indicators of NASDAQ, S&P 500 Dow Jones Industrial Index, and USD-RMB exchange rate in the past three years from six months before the US-China trade war to January 24, 2020, and studies the capital flow and the impact on the US stock market brought by the US-China trade war through modeling and analysis of the smoothness test, impulse response, VAR model and ARMA-GARCHX model of the data. The research found that the fluctuation of the US stock market is not directly caused by the tariff hike, and the main reason for its fluctuation is the movement of the exchange rate.