The impact of trade frictions on the financial vulnerability of Chinese households

Abstract

In recent years, escalating trade frictions have exerted substantial shocks on the financial security of Chinese households. Drawing on data from the China Family Panel Studies (CFPS) for 2014–2022, this study constructs a standard difference-in-differences (DID) model, taking the 2018–2019 U.S. tariff hikes as a quasi-natural experiment. We systematically assess the impact of trade frictions on household financial vulnerability and explore the underlying mechanisms. The findings indicate: (1) trade frictions significantly increase the financial vulnerability of Chinese households; (2) households in urban and export-oriented regions, households with less-educated heads, and those lacking business income, property income, or social security coverage are disproportionately affected; and (3) Trade frictions weaken household financial resilience mainly through employment and income shocks, with price and savings channels playing secondary roles, while asset volatility and especially debt burdens exert the weakest effects. This study provides critical evidence for understanding how external macroeconomic shocks are transmitted to the household level. The findings also offer practical insights for enhancing household economic resilience, strengthening risk-coping capacity, and supporting the broader strategy of expanding domestic demand.