Events

This study explores the impact of geopolitical conflicts, notably the 2018 US-China trade war and the Russia-Ukraine war, on the structure of global supply chains. Against common predictions, we identify an unexpected trend: while the majority of companies decrease their sourcing from these regions following sanctions, government-linked firms show a marked contrast. In particular, these firms significantly increase their sourcing from sanctioned nations. This pattern is not observed in other nations, even those in the same geographic areas. In terms of mechanism, government-linked supplier firms are nearly twice as likely to receive tariff exemptions. More broadly, these effects are increasing in the level of government connection. For instance, firms that are in closer proximity to government agencies or that recruit more employees with government work history tend to increase their sourcing activities more significantly. Lastly, this results in sizable accrued benefits in terms of firm-level operational profitability, market share gains, and outsized stock returns.