Nikhil Kalyanpur (Princeton), Abraham Newman (Georgetown), and Qi Zhang (Fudan)

Estimating the Boundaries of Economic Coercion in the US-China Relationship

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Abstract

States frequently outsource coercion to the market, using sanctions to deter private actors from dealing with blacklisted entities. Yet research is still ambiguous as to the effect and boundaries of such actions on market participants. To better understand the consequences of targeted sanctions, we analyze the impact of the Trump administration’s actions against Chinese companies. Leveraging the event-study method and firm-level data, we find that directly targeted firms performed more than 20% worse than we would expect absent sanctions. Other categories of Chinese firms, however, regardless of their ties to the Chinese state, did not experience significant repercussions. These findings stand in contrast to the literature on political risk, which has found country-level spillovers, and behavioral and ideational scholarship that shows how market actors use heuristics and categories to assess risk. The paper highlights the need for International Relations scholarship to incorporate firm-heterogeneity into theories of economic statecraft, and indicates how equity markets could become an emerging arena of contention in the US-China rivalry.