Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls

Abstract

Amid the current U.S.-China technological race, the U.S. has imposed export controls to deny China access to strategic technologies. We document that these measures induced sizable losses on U.S. suppliers and prompted a broad-based decoupling of U.S. and Chinese supply chains. Once their Chinese customers are added to the export control list, U.S. suppliers experience negative abnormal stock returns, wiping out $130 billion in market capitalization, as well as a drop in profitability and employment. These suppliers are also more likely to terminate relations with Chinese customers, including those not targeted by export controls. We find no evidence of reshoring.

Keywords: geopolitical risk, export controls, decoupling, supply chains

JEL Classification: G12, F51, F38