Firms in Trade with China

Session Submission Type: Full Paper Panel

Session Description

The global trading landscape, particularly involving China, has entered a phase of heightened risk for firms. Mergers and Acquisitions (M&A) between US and Chinese enterprises in high-tech sectors, for instance, have raised security concerns for the US government. Geopolitical tensions between China and the rest of the world, coupled with uncertainties in supply chain linkages, also present challenges for multinational corporations (MNCs) worldwide. China's forced technology transfer and intellectual property (IP) infringement further complicate strategic decisions for firms.

This panel seeks to address the complex dynamics of navigating the trading environment around China. We explore how firms and their managers grapple with these challenges and investigate whether the perspectives of the US government and its allies align with those of MNCs. Additionally, we delve into the extent to which MNCs can shape trade policy-making processes. This panel is organized around these interconnected research questions within the realm of international political economy (IPE).

Focusing on the cases of the Committee on Foreign Investment in the United States (CFIUS), Sarah Bauerle Danzman, Andrey Tomashevskiy, Sichen Li, and Gyu Sang Shim demonstrate how US companies and the government navigate the risky investment environment. Specifically, they develop and test a game-theoretic model, where the government can provide information about what kinds of transactions are most likely to create actionable risk for the government and firms decide whether to file. The authors go on to test the empirical implications, using data on CFIUS filings.

Sichen Li raises the question of why countries sometimes fail to negotiate bilateral settlements to resolve trade conflicts and why the issue is prevalent in high-tech sectors. Li argues that the bargaining failures stem from governments' inability to accurately appraise different bilateral settlements, and emerging technologies often create high levels of uncertainty about return on investment. She provides empirical evidence consistent with this argument and also conducts a deep case study on the information and communication technology (ICT) industry in China.

In Song Kim and Hao Zhang examine how Rules of Origin (RoO), one of the primary policy instruments amid deepening global value chains, interact with other trade policies. Kim and Zhang argue that governments design RoO policies to (1) protect downstream producers, (2) provide export subsidies for upstream producers, and (3) reinforce the existing global production networks shaped by MNCs. Using the first comprehensive dataset on RoO and merging the data with Chinese Customs Data (2000-2013), they document empirical regularities consistent with their argument.

Sayumi Miyano and Jialu Li study how firm managers perceive the distributional impact of trade liberalization and the potential for political coalition building. Miyano and Li theorize that firms rely on information shortcuts from multiple actors, including co-industry firms and firms in the upstream and downstream. They explore this cue-taking process through a survey experiment with Japanese firm managers, examining how the managers react to the impact of China’s potential entry into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Sojun Park asks why some US exporting firms are more risk-averse with respect to IP theft by Chinese companies in international trade. To answer this research question, Park introduces a formal model, demonstrating that companies whose exports are prone to reverse engineering by import-competing firms for their long product lifetime demand patent protection by home government more strongly. He tests the observable implications of the formal model by combining a comprehensive firm-level dataset on US lobbying with US patent citation data.

Sub Unit

• Division 16: International Political Economy

Individual Presentations

• Signaling, Compliance, and Learning in CFIUS M&A Reviews - Sarah Bauerle Danzman, Indiana University; Andrey Tomashevskiy, Rutgers University; Sichen Li, University of California, San Diego; Gyu Sang Shim, Texas A&M University

• Return-on-Investment Uncertainty, First-Mover Advantages, and Trade Disputes - Sichen Li, University of California, San Diego

• The Political Origins of Rules of Origin - In Song Kim, Massachusetts Institute of Technology; Hao Zhang, Princeton University

• Cue-Taking in Trade Politics: Firm Responses in a Competitive Landscape - Sayumi Miyano, Harvard University; Jialu Li, Harvard University

• Innovation, Imitation, and Political Cleavages in Trade and Patent Protection - Sojun Park, Princeton University

Chair

• Sarah Bauerle Danzman Indiana University

Discussants

• Boliang Zhu Pennsylvania State University

• Sarah Bauerle Danzman Indiana University