U.S.–China trade conflicts and R&D investment: evidence from the BIS entity lists

The economic outcomes of U.S.–China trade conflicts on Chinese enterprises remain ambiguous. Using the staggered export control lists released by the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce in conjunction with data from Chinese publicly listed manufacturing firms, we identify Chinese entities subjected to these export controls. Our Difference-in-Differences (DID) estimates show that export restrictions induced by the entity lists enhance the R&D investment intensity among Chinese firms by 16.58% in the next year. The mechanism is that controls increase firms’ R&D investment through government subsidies, firms’ inventory adjustment and firms’ risk-taking. Heterogeneity tests show that the policy effect is more significant for State-owned enterprises (SOEs), firms with executives with foreign experience. In addition, the R&D promotion of firms supported by China’s industrial policy is more pronounced. Although controls significantly increase R&D inputs, they have little or negative effect on firms’ innovation outputs. Our study provides micro-level causal evidence on the economic impacts of the U.S.–China trade war.