Decoupling from China? U.S. Firms’ Partisan Positioning and Supply Chain Strategy
Posted: 1 Nov 2022
Date Written: September 21, 2022
Escalating geopolitical tensions between countries may lead to a country’s adoption of foreign economic policies that promote economic decoupling from the rival country. Our study examines which multinational enterprises (MNEs) tend to embrace their home government’s decoupling policies in their supply chain strategies in the rival country, and why they do so. We adopt a political exchange perspective to suggest that MNEs’ partisan positioning—that captures long-term, relational exchanges between MNEs and a political party—is a key determinant of their embracing of decoupling policies. Using a novel dataset on U.S. MNEs’ supply chains in China and a difference-in-differences design, we find evidence supporting our hypotheses. Specifically, we find that during the Trump administration (where there were calls for economic decoupling from China), U.S. MNEs with Republican-leaning positioning had fewer Chinese suppliers than other MNEs. This relationship was more salient when firms were in industries that involved national security and less so when firms earned a higher share of their revenue from China. Our study informs the international business and corporate political activity literatures by highlighting the role of firms’ domestic partisan positioning in their global strategy in the era of geopolitical rivalry.
Keywords: Geopolitical rivalry, decoupling policy, partisan positioning, supply chain
JEL Classification: M16, M48
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