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

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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 prompted a broad-based decoupling of U.S. and Chinese supply chains. Once their Chinese customers are subject to export controls, U.S. suppliers are more likely to terminate relations with Chinese customers, including those not targeted by export controls. However, we find no evidence of reshoring or friend-shoring. As a result of these disruptions, affected suppliers have negative abnormal stock returns, wiping out $130 billion in market capitalization, and experience a drop in bank lending, profitability, and employment.

Suggested Citation

  • Matteo Crosignani & Lina Han & Marco Macchiavelli & André F. Silva, 2024. "Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls," Staff Reports 1096, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:98127
    DOI: 10.59576/sr.1096
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    More about this item

    Keywords

    geopolitical risk; Export controls; decoupling; supply chains;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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