A Race to Lead: How Chinese Government Interventions Shape the Sino-US Production Competition

Abstract

Using U.S. and China establishment-level data, this paper studies the dynamic interdependence in industrial activities between the U.S. and China. In a VAR framework, high birth rates of Chinese firms predict same-industry firm exits and lowered employment in the U.S., particularly in the export-intensive industries. Moreover, high industry subsidy from the Chinese government is followed by a decrease in the number of establishments and employment in the corresponding U.S. industries, although these subsidies are not motivated by existent deterioration in investment opportunities in the targeted industries in the developed world. China's Five-year Plans offer a tight causal inference as shocks to China's industry growth. These shocks were not preceded by low productivity or valuation in the same industries in the U.S. but were followed by shrinkage of establishments and employment in these industries.

Keywords: Production Competition, Industrial Policy, Trade War

JEL Classification: F14, F16, O25, L60