Regional resources and regional resilience to trade shocks: Evidence from the US-China trade war

This paper studies how firms’ costs of switching to alternative locations affect regional resilience to the 2018 US-China trade shock, and how national and subnational governments in China develop regional resources to mitigate the impact of the adverse shock. Using monthly nightlight data, we apply a difference-in-difference approach and find that cities exporting mostly to the US, especially those relying on processing trade and foreign firms, experienced a large reduction in economic activities shortly after the trade war started. Certain economic resources (top-tier industrial parks) and socio-political resources (sister-city relationships with US cities) developed by governments can increase firms’ switching costs and therefore increase a city’s resilience to the trade shock.