Opposing Firm-Level Responses to the China Shock: Horizontal Competition Versus Vertical Relationships?

Abstract

We decompose the “China shock” into two components that induce different adjustments for firms exposed to Chinese exports: an output shock affecting firms selling goods that compete with similar imported Chinese goods, and an input supply shock affecting firms using inputs similar to the imported Chinese goods. Combining French accounting, customs, and patent information at the firm-level, we show that the output shock is detrimental to firms’ sales, employment and innovation. Moreover, this negative impact is concentrated on low-productivity firms. By contrast, we find a positive effect - although often not significant - of the input supply shock on firms’ sales, employment and innovation.