Do Targeted Trade Sanctions Against Chinese Technology Companies Affect US Firms? Evidence from an Event Study

This article asks how costly targeted trade sanctions imposed by the US government are for domestic firms. I argue that, as a result of sanctions, the firm value of US companies that have supply relationships with sanctioned entities is likely to suffer from lost revenue, reputational damage, and bu...

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Bibliographic Details
Published inBusiness and politics Vol. 23; no. 3; pp. 330 - 343
Main Author Allen, Jeffrey S.
Format Journal Article
LanguageEnglish
Published Cambridge, UK Cambridge University Press 01.09.2021
Subjects
Companies
Costs
Cross-sectional studies
Exports
Foreign policy
National security
Political economy
R&D
Research & development
Risk adjustment
Sanctions
Technology
Trade
Uncertainty
Volatility
United States > US
economic statecraft
international political economy
event study
economic sanctions
US-China relations
great power competition
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Summary:This article asks how costly targeted trade sanctions imposed by the US government are for domestic firms. I argue that, as a result of sanctions, the firm value of US companies that have supply relationships with sanctioned entities is likely to suffer from lost revenue, reputational damage, and business model uncertainty. I test this expectation by applying an event study to the important case of targeted trade sanctions against Chinese technology companies. I find that sanctions against these companies reduced their US suppliers’ risk-adjusted stock returns by 220 basis points. Firm-level cross-sectional analysis shows that businesses with stronger ties to the sanctioned entities are more negatively affected, which supports the direct connection between sanctions and relevant suppliers. Measuring the domestic economic ramifications of sanctions for the sender country has been elusive. These findings, which are statistically and economically significant, indicate that US companies face notable costs from sanctions against internationally active firms.
ISSN:1469-3569
1469-3569
DOI:10.1017/bap.2020.21