Navigating Sanction Seesaw: How China Helps Firms Sanctioned in the US

• In Event: Firms in International Political Economy

Abstract

Why do some sanctions incur major costs, whereas others have a more subdued impact? I argue that the impact of economic sanctions is contingent upon the degree of coordination between sanctioned firms and the target state. Firms that align with the strategic interests of the target state are more likely to receive subsidies and transfers to bail them out from foreign sanctions. I examine this question in the context of the United States’ unprecedented economic sanctions against China. With an original dataset of the universe of US-sanctioned Chinese firms, I employ a difference-in-difference strategy by comparing sanctioned firms to non-sanctioned ones before and after the US sanction. I show that the Chinese state selectively provides more subsidies and government contracts to firms that contribute to China’s policy agenda – promoting strategic sectors for industrial upgrading and military modernization. While existing literature predominately considers sanctions as a one-off game, this paper offers insights into the dynamic interactions among the sender state, the target state, and the target businesses and their impacts on the effectiveness of economic sanctions.

Author

• Jialu Li, Harvard University