Trade protectionism suppresses Chinese firms’ cross-border M&A

The tariff-jumping theory posits that, when confronted with rising tariff barriers, firms increase their investment in the tariff-imposing country in order to circumvent the tariffs. We integrate data on Chinese firms' cross-border mergers and acquisitions (M&A), export, and monthly product-level tariff data from 2018 to 2019. By constructing a shift-share instrumental variable (SSIV), we find that trade protectionism suppresses Chinese firms' cross-border M&A—a finding that contradicts the traditional tariff-jumping hypothesis. This research identifies three potential mechanisms: (1) the Trump tariffs directly reduce firms’ operating performance; (2) the U.S. foreign investment security review process generates a demonstration effect; and (3) uncertainty arising from U.S.-China trade tensions weakens the bargaining power of Chinese firms.