Goods Tariff vs Digital Services Tax: Transatlantic Financial Market Reactions
Goods Tariff vs Digital Services Tax: Transatlantic Financial Market Reactions

Summary/Abstract: During the Trump administration period, a new wave of business conflicts broke out and escalated between the US and a wide variety of other economies. I employ event-study methodologies to examine the abnormal return patterns in both equity and currency markets, surrounding a series of recent announcements associated with the EU-US economic conflict escalations and occasional reconciliations. Such investigated announcement events focus not only on transatlantic tariff impositions and retaliations upon imported goods, but also on the digital services tax (DST) legislations developed by the EU against international (e.g., US) digital services business giants. I find some evidence for these two comparable economic powers: a) The announcements of US tariff impositions and EU tariff countermeasures caused some resembling price reactions (in terms of signs and significance levels) on the broad-based stock markets of both sides, suggesting neither side was able to gain upon the counterpart’s wealth loss; b) The EU measures of DST legislation also carried some significant valuation impact on EU and/or US broad stock indices; c) Compared with American and European equity markets, the Euro-to-USD currency spot seemed to be even more responsive to transatlantic economic conflict events. I finally discuss about some implications of such findings.

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