Impact of the U.S.–China trade war on the operating performance of U.S. firms: The role of outsourcing and supply base complexity

Abstract

Multinational corporations have benefited tremendously from free trade in the past few decades. However, the dynamism of international relations, paired with the global recession, has rekindled the debate over frictionless trade. In this study, we examine how trade friction, created by tariff trade barriers, affects the operational performance of domestic firms which source from the affected countries. We also investigate how various supply chain characteristics and strategies can moderate the impact of such trade friction. Motivated by the 2018 U.S.-China trade war, we conducted a difference-in-difference analysis to examine the impact of trade tariffs on performance indicators of U.S. firms with direct supplier connections in China. Specifically, we found that U.S. firms with direct supply partners (i.e., first-tier suppliers) in China had a worse performance than the U.S. firms without direct supply partners in China in terms of inventory (i.e., days of supply) and profitability (return-onassets). We further found that the negative impacts were more severe for firms with a higher degree of outsourcing, and horizontal and spatial supply base complexity. We discuss the implications for international operations management, supply chain networks, supply risk management, and provide suggestions to supply chain practitioners and trade policymakers.

Enhance or impair: how does downstream complexity influence supply chain resilience with reconciling effects of intelligent manufacturing?

“…The second stream investigates supply chain complexity in terms of upstream, downstream and internal complexities according to their origins (Bozarth et al, 2009;Akın Ates ¸et al, 2021). The third stream focuses Reconciling effects of intelligent manufacturing on upstream complexity and divides it into more detailed sub-categories (Brandon-Jones et al, 2014b;Bode and Wagner, 2015;Wiedmer et al, 2021;Delbufalo, 2022;Fan et al, 2022), such as horizontal, vertical and spatial complexities according to the number of tiers, the number of members in each tier and geographic distances among different members, respectively (Brandon-Jones et al, 2014b;Bode and Wagner, 2015;Lu and Shang, 2017;Sharma et al, 2019;Wiedmer et al, 2021;Delbufalo, 2022;Fan et al, 2022).…”

“…, 2014b; Bode and Wagner, 2015; Wiedmer et al. , 2021; Delbufalo, 2022; Fan et al. , 2022), such as horizontal, vertical and spatial complexities according to the number of tiers, the number of members in each tier and geographic distances among different members, respectively (Brandon-Jones et al.…”

Impact of US-China trade war on Asian economies: neural network multilayer perceptron approach

“…From a politico-economic prism, the view of American regarding trade war has also been studied, and the findings reveal that Americans are divided over US–China trade war though 76% of the surveyed adults supported trade with China (Jin et al , 2022). In addition, by applying difference in difference technique, it was found that trade war has a negative impact for US firms with high outsourcing (Fan et al , 2022). Recent findings on the decrease in China’s exports to the USA are not surprising, and the specific fall in the exports has been reported to be 16.47% associated with quantity fall while price remain unchanged, relatively (Jiang et al , 2023).…”

Global operations and supply‐chain management under the political economy

“…Further, the authors found that the ban benefited ZTE's competitors, whose stock prices advanced by 1.34%. Fan et al (2022) examined the impact of the 2018 US-China trade war on US firms' operating performance. Their DiD analysis revealed that US firms suffered from an increase in days of inventory and lower profitability because of the trade war.…”