The U.S. trade war with China cut US$1.7 trillion from the market value of listed American firms and will reduce their investment growth rate by almost two percentage points by year-end, according to a report highlighted by the Federal Reserve Bank of New York.

Higher tariffs weakened investment expansion by 0.3 percentage point through the end of 2019 and will subtract another 1.6 percentage points this year, according to the report by economists Mary Amiti, a vice president at the New York Fed, and Columbia University’s Sang Hoon Kong and David Weinstein.

American firms bore almost all the cost of higher U.S. import duties, and those that export to China also became became less profitable due to Chinese tariffs, the report said. That counters President Donald Trump’s oft-repeated assertion that China pays his tariffs.

The trade war also probably caused a slowdown in the Chinese economy, reducing the return on investment that American companies made there, the authors found. Using a comparison of stock prices, they forecast lower expected profitability to hurt investment growth.

“Discussions of the trade war often focus only on U.S. exports to and imports from China, missing the much larger exposure of U.S. firms emanating from their subsidiaries in China,” the report said.

The researchers estimate that about 46 per cent of U.S. firms are exposed to China through importing, exporting or selling through subsidiaries, and that on average they got 2.3 per cent of revenue from China.

Trump started putting tariffs on Chinese goods in 2018, saying that the nation had long taken advantage of the U.S. China has answered with penalties on U.S. goods. Despite announcing a partial trade deal in January, hundreds of billions of dollars in tariffs remain in place.