Chips, Dips, & Geopolitics: Exploring the Effects of the US-China Trade War on the Semiconductor Industry’s Stock Performance

Abstract

Since 2018, the United States and China have been embroiled in a trade war marked by a rapid exchange of tariffs and trade restrictions. Amid this trade war, escalating techno-geopolitical tensions have propelled semiconductors into the spotlight turning these tiny pieces of silicon into tools of strategic weaponization. This thesis investigates the effects of trade policy announcements on the semiconductor industry’s stock market performance, specifically analyzing the returns of global, US, and China semiconductor indices. Analysis of abnormal returns reveals that both the global and US semiconductor industries experienced more pronounced negative announcement shocks compared to China particularly when the US implemented semiconductor-specific trade restrictions. I utilize a time-series OLS model to further test the temporal effects of policy announcements on semiconductor index returns. This thesis provides evidence that protectionist trade policies negatively affect domestic financial semiconductor markets. In elucidating how trade policy shocks affect semiconductor equity performance, this body of work delivers key insights for governments, corporations and investors.