Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-12T05:53:57.821Z Has data issue: false hasContentIssue false
  • English
  • Français

Do Targeted Trade Sanctions Against Chinese Technology Companies Affect US Firms? Evidence from an Event Study

Published online by Cambridge University Press:  02 March 2021

Jeffrey S. Allen Open the ORCID record for Jeffrey S. Allen [Opens in a new window]
Jeffrey S. Allen*
Affiliation:
Johns Hopkins University, School of Advanced International Studies, 1740 Massachusetts Avenue NW, Washington, DC, 20036, United States
*
Corresponding author: Jeffrey S. Allen, email: jallen71@jhu.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

This article asks how costly targeted trade sanctions imposed by the US government are for domestic firms. I argue that, as a result of sanctions, the firm value of US companies that have supply relationships with sanctioned entities is likely to suffer from lost revenue, reputational damage, and business model uncertainty. I test this expectation by applying an event study to the important case of targeted trade sanctions against Chinese technology companies. I find that sanctions against these companies reduced their US suppliers’ risk-adjusted stock returns by 220 basis points. Firm-level cross-sectional analysis shows that businesses with stronger ties to the sanctioned entities are more negatively affected, which supports the direct connection between sanctions and relevant suppliers. Measuring the domestic economic ramifications of sanctions for the sender country has been elusive. These findings, which are statistically and economically significant, indicate that US companies face notable costs from sanctions against internationally active firms.

Keywords

economic sanctionseconomic statecraftinternational political economyevent studyUS-China relationsgreat power competition
Type
Research Article
Information
Business and Politics , Volume 23 , Issue 3 , September 2021 , pp. 330 - 343
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press on behalf of V.K. Aggarwal

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Biersteker, Thomas J, Eckert, Sue E., and Tourinho, Marcos. 2016. Targeted Sanctions: The Impacts and Effectiveness of United Nations Action. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Bloomberg, L.P. 2019. “Supply Chain Analysis <SPLC>.” Retrieved from Bloomberg terminal, 10 December 2019..”+Retrieved+from+Bloomberg+terminal,+10+December+2019.>Google Scholar
Boehmer, Ekkehart, Musumeci, Jim, and Poulsen, Annette B.. 1991. “Event-Study Methodology Under Conditions of Event-Induced Variance.” Journal of Financial Economics 30 (2): 253–72.10.1016/0304-405X(91)90032-FCrossRefGoogle Scholar
Brown, Stephen J., and Warner, Jerold B.. 1985. “Using Daily Stock Returns: The Case of Event Studies.” Journal of Financial Economics 14 (1): 3–31.10.1016/0304-405X(85)90042-XCrossRefGoogle Scholar
Bureau of Industry and Security. n.d.a. “Entity List.” Accessed 1 September 2019. https://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list.Google Scholar
Bureau of Industry and Security. n.d.b. “Mission Statement.” Accessed 1 September 2019. https://www.bis.doc.gov/index.php/about-bis/mission-statement.Google Scholar
Cameron, A. Colin, Gelbach, Jonah B., and Miller, Douglas L.. 2011. “Robust inference with multiway clustering.” Journal of Business & Economic Statistics 29: 238–49.10.1198/jbes.2010.07136CrossRefGoogle Scholar
Center for Research in Security Prices. 2020. “Daily Stock File.” The University of Chicago Booth School of Business. Retrieved from Wharton Research Data Service, 24 February 2020.Google Scholar
Corrado, Charles J, and Zivney, Terry L.. 1992. “The Specification and Power of the Sign Test in Event Study Hypothesis Tests using Daily Stock Returns.” Journal of Financial and Quantitative Analysis 27 (3): 465–78.10.2307/2331331CrossRefGoogle Scholar
Cortright, David, and Lopez, George A.. 2002. “Introduction: Assessing Smart Sanctions: Lessons from the 1990s.” In Smart Sanctions: Targeting Economic Statecraft, edited by Cortright, David and Lopez, George, 1–22. New York: Rowman and Littlefield.Google Scholar
Cortright, David, Lopez, George A., and Rogers, Elizabeth S.. 2002. “Targeted Financial Sanctions: Smart Sanctions that Do Work.” In Smart Sanctions: Targeting Economic Statecraft, edited by Cortright, David and Lopez, George, 1–22. New York: Rowman and Littlefield.Google Scholar
Cowan, Arnold Richard. 1992. “Nonparametric Event Study Tests.” Review of Quantitative Finance and Accounting 2: 343–58.CrossRefGoogle Scholar
Department of Commerce. 1997. Final Rule. “Entity List.” Federal Register 62, No. 22 (3 February 1997): 4910. https://www.govinfo.gov/content/pkg/FR-1997-02-03/pdf/97-2503.pdf.Google Scholar
Department of Commerce. 2008. Final Rule. “Authorization To Impose License Requirements for Exports or Reexports to Entities Acting Contrary to the National Security or Foreign Policy Interests of the United States.” Federal Register 73, No. 163 (21 August 2008): 49311. https://www.govinfo.gov/content/pkg/FR-2008-08-21/pdf/E8-19102.pdf.Google Scholar
Department of Commerce. 2016a. Final Rule. “Addition of Certain Persons and Modification of Certain Entries to the Entity List; and Removal of Certain Persons From the Entity List.” Federal Register 81, No. 35 (23 February 2016): 8825. https://www.govinfo.gov/content/pkg/FR-2016-02-23/pdf/2016-03745.pdf.Google Scholar
Department of Commerce. 2016b. Final Rule. “Additions to the Entity List.” Federal Register 81, No. 45 (8 March 2016): 12004. https://www.govinfo.gov/content/pkg/FR-2016-03-08/pdf/2016-05104.pdf.Google Scholar
Department of Commerce. 2016c. Final Rule. “Temporary General License.” Federal Register 81, No. 57 (24 March 2016): 15633. https://www.govinfo.gov/content/pkg/FR-2016-03-24/pdf/2016-06689.pdf.Google Scholar
Department of Commerce. 2018. Final Rule. “Addition of Certain Entities to the Entity List, Revision of an Entry on the Entity List and Removal of an Entity From the Entity List.” Federal Register 83, No. 187 (26 September 2018): 48532. https://www.govinfo.gov/content/pkg/FR-2018-09-26/pdf/2018-20954.pdf.Google Scholar
Department of Commerce. 2019a. Final Rule. “Addition of Entities to the Entity List.” Federal Register 84, No. 98 (21 May 2019): 22961. https://www.govinfo.gov/content/pkg/FR-2019-05-21/pdf/2019-10616.pdf.Google Scholar
Department of Commerce. 2019b. Final Rule. “Temporary General License.” Federal Register 84, No. 99 (22 May 2019): 23468. https://www.govinfo.gov/content/pkg/FR-2019-05-22/pdf/2019-10829.pdf.Google Scholar
Department of Commerce. 2019c. Final Rule. “Addition of Certain Entities to the Entity List.” Federal Register 84, No. 196 (9 October 2019): 54002. https://www.govinfo.gov/content/pkg/FR-2019-10-09/pdf/2019-22210.pdf.Google Scholar
Department of Commerce. 2019d. Final Rule. “Addition of Entities to the Entity List, Revision of an Entry on the Entity List, and Removal of Entities From the Entity List.” Federal Register 84, No. 219 (13 November 2019): 61538. https://www.govinfo.gov/content/pkg/FR-2019-11-13/pdf/2019-24635.pdf.Google Scholar
Department of Commerce. 2020. Final Rule. “Addition of Huawei Non-US Affiliates to the Entity List, the Removal of Temporary General License, and Amendments to General Prohibition Three (Foreign-Produced Direct Product Rule).” Federal Register 85, No. 162 (17 August 2020): 51596. https://www.govinfo.gov/content/pkg/FR-2020-08-20/pdf/2020-18213.pdf.Google Scholar
DeRosa, Dean. 2009. “Impact of US Economic Sanctions on Trade.” In Hufbauer, Gary Clyde, Schott, Jeffrey J., Elliott, Kimberly Ann and Oegg, Barbara. 2009. Economic Sanctions Reconsidered, 3rd edition. Washington, DC: Peterson Institute for International Economics. Appendix B.Google Scholar
Drezner, Daniel W. 1999. The Sanctions Paradox. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Drezner, Daniel W. 2011. “Sanctions Sometimes Smart: Targeted Sanctions in Theory and Practice.” International Studies Review 13 (1): 96–108.CrossRefGoogle Scholar
Drezner, Daniel W. 2015. “Targeted Sanctions in a World of Global Finance.” International Interactions 41 (4): 755–64.10.1080/03050629.2015.1041297CrossRefGoogle Scholar
Drezner, Daniel W. 2019. “Economic Statecraft in the Age of Trump.” The Washington Quarterly 42 (3): 7–24.10.1080/0163660X.2019.1663072CrossRefGoogle Scholar
Early, Bryan R., and Schulzke, Marcus. 2019. “Still Unjust, just in Different Ways: How Targeted Sanctions Fall Short of Just War Theory's Principles.” International Studies Review 21 (1): 57–80.10.1093/isr/viy012CrossRefGoogle Scholar
Elliott, Kimberly Ann. 2002. “Analyzing the Effects of Targeted Sanctions.” In Smart Sanctions: Targeting Economic Statecraft, edited by Cortright, David and Lopez, George, 1–22. New York: Rowman and Littlefield.Google Scholar
Fama, Eugene F., Fisher, Lawrence, Jensen, Michael C., and Roll, Richard. 1969. “The Adjustment of Stock Prices to New Information.” International Economic Review. 10, no. 1 (February): 1–21.10.2307/2525569CrossRefGoogle Scholar
Hufbauer, Gary, Elliott, Kimberly Ann, Cyrus, Tess, and Winston, Elizabeth. 1997. “US Economic Sanctions: Their Impact on Trade, Jobs, and Wages.” Working Paper. Institute for International Economics. https://www.piie.com/publications/working-papers/us-economic-sanctions-their-impact-trade-jobs-and-wages.Google Scholar
Hufbauer, Gary Clyde, Schott, Jeffrey J., Ann Elliott, Kimberly, and Oegg, Barbara. 2009. Economic Sanctions Reconsidered. 3rd edition. Washington, DC: Peterson Institute for International Economics.Google Scholar
International Trade Administration. 2020. “Consolidated Screening List.” Retrieved from trade.gov, 15 January 2020. https://www.trade.gov/consolidated-screening-list.Google Scholar
Jaffe, Jeffrey F. 1974. “Special information and insider trading.” Journal of Business 47: 410–28.10.1086/295655CrossRefGoogle Scholar
Kolari, James W., and Pynnonen, Seppo. 2010. “Event Study Testing with Cross-Sectional Correlation of Abnormal Returns.” The Review of Financial Studies 23, no. 11 (November): 3996–4025.10.1093/rfs/hhq072CrossRefGoogle Scholar
Kolari, James W., and Pynnonen, Seppo. 2011. “Nonparametric rank tests for event studies.” Journal of Empirical Finance 18: 953–71.10.1016/j.jempfin.2011.08.003CrossRefGoogle Scholar
Kolari, James W., Pape, Bernd, and Pynnonen, Seppo. 2018. “Event Study Testing with Cross-Sectional Correlation Due to Partially Overlapping Event Windows.” Mays Business School Research Paper No. 3167271.10.2139/ssrn.3167271CrossRefGoogle Scholar
Kothari, S.P., and Warner, Jerold B.. 2007. “Econometrics of Event Studies.” In Handbook of Empirical Corporate Finance, edited by Eckbo, B. Espen. Amsterdam: Elsevier/North-Holland.Google Scholar
MacKinlay, A. Craig. 1997. “Event Studies in Economics and Finance.” Journal of Economic Literature 35, no. 1 (March): 13–39.Google Scholar
Mastanduno, Michael. 1992. Economic Containment. Ithaca, NY: Cornell University Press.Google Scholar
Morgan, T. Clifton, and Bapat, Navin A.. 2003. “Imposing Sanctions: States, Firms, and Economic Coercion.” International Studies Review 5 (4): 65–79.10.1111/j.1079-1760.2003.00504007.xCrossRefGoogle Scholar
Morgan, T. Clifton, Bapat, Navin, and Kobayashi, Yoshiharu. 2014. “Threat and Imposition of Economic Sanctions 1945–2005.” Conflict Management and Peace Science 31 (5): 541–58.CrossRefGoogle Scholar
Muñiz, Manuel. 2019. “The Coming Technological Cold War.” Project Syndicate. https://www.project-syndicate.org/commentary/us-china-technology-cold-war-by-manuel-muniz-2019-04?barrier=accesspaylog.Google Scholar
Nasdaq. 2020. Global Index Data Service. Yahoo! Finance, 24 February 2020.Google Scholar
Pape, Robert A. 1997. “Why Economic Sanctions Do Not Work.” International Security 22, no. 2 (fall): 90–136.10.1162/isec.22.2.90CrossRefGoogle Scholar
Patell, J. M. 1976. “Corporate forecasts of earnings per share and stock price behavior.” Journal of Accounting Research 14 (2): 246–76.10.2307/2490543CrossRefGoogle Scholar
Richardson, J.D. 1993. “Sizing Up US Export Disincentives.” Washington, DC: Institute for International Economics.Google Scholar
Segal, Adam. 2018. “Year in Review: Huawei and the Technology Cold War.” New York: Council on Foreign Relations. https://www.cfr.org/blog/year-review-huawei-and-technology-cold-war.Google Scholar
Segal, Adam. 2019. “Year in Review 2019: The US-China Tech Cold War Deepens and Expands.” New York: Council on Foreign Relations. https://www.cfr.org/blog/year-review-2019-us-china-tech-cold-war-deepens-and-expands.Google Scholar
Shambaugh, George E. 1999. States, Firms, and Power. Albany, NY: State University of New York Press.Google Scholar
Smith, Gordon. 1984. The Politics of East-West Trade. Boulder, CO: Westview Press.Google Scholar
Standard & Poor's (S&P) Global Market Intelligence. 2020a. Compustat. Retrieved from Wharton Research Data Service, 11 September 2020.Google Scholar
Standard & Poor's (S&P) Global Market Intelligence. 2020b. NetAdvantage. Retrieved from Wharton Research Data Service, 13 September 2020.Google Scholar
Triolo, Paul, Allison, Kevin, and Brown, Clarise. 2018. “The Geopolitics of 5G.” Eurasia Group White Paper. November 15.Google Scholar
United States. 2017. “National Security Strategy of the United States of America.” Washington, DC: President of the United States.Google Scholar
United States. 2018. “Summary of the 2018 National Defense Strategy of the United States of America.” Washington, DC: Department of Defense.Google Scholar
Webb, Clayton. 2020. “Re-examining the Costs of Sanctions and Sanctions Threats Using Stock Market Data.” International Interactions 46 (5): 749–77.10.1080/03050629.2020.1788549CrossRefGoogle Scholar
Supplementary material: File

Allen supplementary material

Allen supplementary material

Download Allen supplementary material(File)
File 60.6 KB