Impact of the U.S.-China Trade War on the Operating Performance of U.S. Firms: The Role of Outsourcing and Supply Base Complexity

Di Fan, Yi Zhou, Andy Yeung, Chris K Y Lo, Christopher S. Tang

Research output: Contribution to journalArticlepeer-review

22 Citations (Scopus)

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-on-assets). 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.

Original languageEnglish
Pages (from-to)928-962
Number of pages35
JournalJournal of Operations Management
Volume68
Issue number8
Early online date3 Oct 2022
DOIs
Publication statusPublished (in print/issue) - 28 Dec 2022

Bibliographical note

Funding Information:
The authors thank the Co‐Editor‐in‐Chiefs, the handling Departmental Editor, the anonymous Associate Editor and three reviewers for their constructive comments and suggestions. This project was supported in part by the General Research Fund from the Research Grant Council of Hong Kong (Project Number: 15504421). Andy C. L. Yeung was supported in part by PolyU's Research grant 99QP. 1

Funding Information:
PolyU's Research, Grant/Award Number: 99QP; Research Grant Council of Hong Kong, Grant/Award Number: 15504421 Funding information

Publisher Copyright:
© 2022 Association for Supply Chain Management, Inc.

Keywords

  • Geopolitical risk
  • trade war
  • outsourcing
  • supply base complexity
  • difference-in-difference
  • geopolitical risk

Fingerprint

Dive into the research topics of 'Impact of the U.S.-China Trade War on the Operating Performance of U.S. Firms: The Role of Outsourcing and Supply Base Complexity'. Together they form a unique fingerprint.

Cite this