Import Competition and Firms� Internal Networks

Using administrative data on U.S. multisector firms, we document a cross-sectoral propagation of the import competition from China (�China shock�) through firms� internal networks: Employment of an establishment in a given industry is negatively affected by China shock that hits establishments in other industries within the same firm. This indirect propagation channel impacts both manufacturing and non-manufacturing establishments, and it operates primarily through the establishment exit. We explore a range of explanations for our findings, highlighting the role of within-firm trade across sectors, scope of production, and establishment size. At the sectoral aggregate level, China shock that propagates through firms� internal networks has a sizable impact on industry-level employment dynamics.