The Impact of the Trade War: Divergence in Chinese and U.S. Innovations in the Post-Conflict Era

Abstract: This paper investigates the impact of the US-China trade war on China’s innovation activities and the link between Chinese new technology and the US. Employing textual analysis to gauge the resemblance of China’s patents to recent and past US patents, the paper finds that an increase in the firm-level exposure to US export tariffs results in a decrease in the similarity of China’s patents to US patents, particularly the most recent ones. Most of the similarity decrease is due to high-TFP firms. Besides, the export tariff reduces both the R&D spending and patent applications in China. When controlling for China-US patent similarity, Chinese patents exhibit no significant deviation from those of other developed countries. Tariffs on China’s imports from the US do not wield a significant influence on China’s innovation activities.