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

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Abstract

Hegemonic countries safeguard their dominant position by maintaining technological leadership. To this end, the U.S. has imposed export controls to restrict China’s access to strategic, cutting-edge technologies. We document that these measures lead to an immediate, broad-based decoupling of supply chains, with U.S. suppliers more likely to end relations with Chinese customers—even those not directly targeted by the policy. However, we find no evidence of reshoring or friend-shoring in U.S. supply chains. Due to these disruptions, affected U.S. suppliers experience a $130 billion decline in market capitalization, along with reductions in profitability and employment.

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  • 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
    Note: Revised November 2024.
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    More about this item

    Keywords

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

    JEL classification:

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

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