US Fed: US export controls to China wiped out $130B
The Federal Reserve Bank of New York's report reveals that U.S. export controls on China have caused significant supply chain decoupling, leading to severe financial consequences for affected suppliers and no evidence of reshoring.
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The Federal Reserve Bank of New York's staff report titled "Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls" examines the impact of U.S. export controls on China amid the ongoing technological competition between the two nations. The report highlights that these export controls have led to a significant decoupling of U.S. and Chinese supply chains. U.S. suppliers are increasingly terminating relationships with Chinese customers, even those not directly affected by the export restrictions. The study finds no evidence of reshoring or friend-shoring as a response to these measures. The consequences for affected suppliers are severe, resulting in negative abnormal stock returns that have collectively erased $130 billion in market capitalization. Additionally, these suppliers face declines in bank lending, profitability, and employment levels. The authors of the report, Matteo Crosignani, Lina Han, Marco Macchiavelli, and André F. Silva, assert that their research was conducted without any relevant financial interests influencing their findings. The report underscores the broader economic implications of geopolitical tensions and the strategic decisions made by firms in response to regulatory changes.
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5 commentsI have no real horse in the race about export controls with China or elsewhere, but some notes: timelines matter here — rebuilding industrial capacity is .. not fast. Especially in the US today, much more safety-conscious, labor-rights oriented, etc, than when much of our on-shore industry got build in WW2 era.
To my mind, especially with US political cycles providing a fair amount of policy whiplash, it’s too early to see what total impact these rules have had — let’s check in on these numbers in 20 years. If export controls continued unabated over that period, I imagine we’ll have seen a fair amount of on-shoring of former supply chains.
It is plausible that China is the economy in the global drivers seat now. If they are, then attempts to limit their economy will probably bounce off - unless violence is used, the laws of economics favour those who work hard, invest and are honest about what is affordable. The evidence suggests China does those things better than the US (although it is probably fairly knife-edge, both countries have out-of-control levels of government intervention in markets but at some point China will probably do something stupidly authoritarian).
This report is interesting in light of that frame.
Between how specialized a lot of the tech is and a lot of things only being worth doing if it is cheap, was this surprising?
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