Trade Conflict, Capital Flows and Dynamic Changes in Chinese Stock Market

Abstract

In Mar, 22nd 2018, the U.S. government announced the list of tariff-imposed commodities, which will impose 25% tariffs on 1,333 items worth US$50billion of goods exports from China to the U.S. The trade war between China and US has been lasted for 4 years and 5 months, the US government has increased the tariffs 6 times, and specifically, this brings a huge impact on capital flows and dynamic changes in Chinese stock market. This paper demonstrates how increase the tariff bring huge impacts on Chinese stock market by analyzing different models, such as ADF test, VAR model, and ARMA-GARCH model, and by studying the results to better understand how Chinese stock market influenced by the tariff increase, and to provide an accurate prediction for the future trend of the Chinese stock market and make recommendation for Chinese investors and Chinese government. The trade war severe impact Chinese economy, and the stock price is falling which lead to investor to hold their money instead of investing in the market, and investors rushed to the safety of low-yielding government debt. The ARMA-GARCH model analyse and present the data and represents the impacts by analysing the stock returns and the volatility. Lastly, there are some recommendations based on current economic situation.