Mapping U.S.-China Technology Decoupling: Policies, Innovation, and Firm Performance

Abstract

We develop measures for technology decoupling and dependence between the U.S. and China based on combined patent data. The first two decades of the century witnessed a steady increase in technology integration (or less decoupling), but China’s dependence on the U.S. increased (decreased) during the first (second) decade. Firms covered by China’s Strategic Emerging Industries policies became less decoupled with the U.S., gained cash flows and valuation but saw no improvement in either innovation output/quality or productivity. Post U.S. sanctions, firms in sanctioned sectors and their downstream suffer in performance but also became less decoupled with the U.S. However, firms in the upstream of the sanctioned sectors experienced significant improvements in productivity and produced more innovation of breaking-through and explorative quality.

Keywords: Technology Decoupling, Innovation, R&D, Patent, Firm Performance

JEL Classification: O31, O33, F02, O25