A recent report from the Federal Reserve Bank of New York concludes that the export controls the U.S. has imposed in recent years against China have injured U.S. exporters while having a limited impact on Chinese companies.
According to the report, export controls have prompted a broad-based decoupling of affected U.S. suppliers from Chinese firms. In particular, following the inclusion of Chinese targets on U.S. restricted party lists, suppliers are more likely to terminate relations with Chinese customers, both those that are directly targeted by export controls and those that are not. Suppliers are also less likely to form new relations with other Chinese customers over concerns that they may violate U.S. export controls by re-exporting sensitive technology to restricted Chinese firms.
However, the report states, this decoupling from China is not offset by the creation of new supply chain relations between U.S. suppliers and alternative customers located outside of China (friendshoring) or within the U.S. (reshoring). “The inability of affected suppliers to quickly find alternative customers may therefore harm the very same firms whose technology U.S. export controls are trying to protect,” the report states. For example, estimates suggest that export controls cost the average affected U.S. supplier $857 million in lost market capitalization, with total losses across all suppliers of $130 billion. Suppliers also tend to experience a decline in revenues, profitability, bank lending, and employment.
Moreover, the benefits of U.S. export controls (i.e., denying China access to advanced technology) may be limited as a result of China’s strategic behavior. Specifically, targeted Chinese firms tend to quickly form new relationships with domestic Chinese suppliers, thus boosting domestic innovation and self-reliance. They also increase purchases from non-U.S. firms, often headquartered in U.S.-allied countries, which experience an increase in revenues following the imposition of U.S. export controls.
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