China and National-Security-Related Trade Restrictions in High-Tech Sectors

• In Event: China, Global Economic Engagement, and International Responses

Abstract

What explains the rise in national-security-related trade restrictions (NSTRs) on Chinese tech firms by the United States? This paper argues that Chinese firms are more likely to be targeted by NSTRs when they are dependent on U.S. firms that control parts of global innovation networks (GINs) that can choke off technology exchange, and when the U.S. government lacks control over its domestic businesses. The U.S. government can obtain bargaining advantages when its domestic industries control parts of GINs that are indispensable to Chinese firms, namely choke points. However, the U.S. government's ability to restrict trade in these choke-point industries is limited as the latter tend to be pro-trade given their advantageous positions in the market. Invoking national security thus becomes an appealing option to the U.S. government as it allows it to escape institutional reviews and be less susceptible to domestic political opposition. Based on network analysis on global patent license agreements, this paper predicts that a Chinese firm is more likely to face NSTRs if it is connected with U.S. firms located at centers of global patent licensing networks. And this correlation is more salient if the U.S. firms are exposed to weak government regulations. This paper contributes to the weaponized interdependence literature by examining how global production networks interact with government-business relations to generate protectionist trade policies.

Author

• Sichen Li, Princeton University