Navigating Weaponized Trade: State and Corporate Responses to Economic Coercion

Abstract

Economic sanctions, tariffs, and export controls have emerged as primary instruments of geopolitical coercion. As states weaponize trade policies against rivals and sometimes even allies, these measures trigger complex adaptive responses from other states and businesses. Targeted states have applied protective industrial policies to shield domestic firms, while sanctioned firms strategically forge new partnerships to maintain market access. Meanwhile, non-targeted multinational firms also develop coping strategies, creating ripple effects through global supply chains. These responses fundamentally reshape international economic and political engagement, altering investment decisions, research collaborations, and political advocacy beyond the original intent of sanctions. By examining these multifaceted adaptations across various actors, this dissertation offers insights into how economic coercion reshapes the global economy in an era of strategic competition and weaponized interdependence. The first paper investigates how states protect domestic industries in response to economic sanctions. When foreign economic coercion triggers security concerns, states strategically shield not only targeted firms but also their domestic partners. I collected and analyzed an original dataset of U.S.-sanctioned Chinese firms from 2008 to 2023, including 845,000 itemized subsidies, 2.3 million government procurements, and 1 million patents. I employ two sets of difference-in-difference analyses to estimate state responses to foreign sanctions. The findings reveal that China subsidizes both directly sanctioned firms and comparable firms in the same sanctioned industries. China’s protective measures provide assurance to other domestic market actors and incentivize them to continue “business as usual” with firms in sanctioned industries. This paper shows that economic coercion intensifies divisions among major economies, driving states to develop more domestically oriented strategies that fragment global trade networks. The second paper examines how economic sanctions alter foreign firms’ strategies of influence in the United States. As direct lobbying channels face mounting scrutiny, sanctioned foreign firms develop indirect channels through strategic business partnerships. Using 41,256 firm-to-firm partnership data spanning 1997-2024, I demonstrate how sanctioned firms form new supply chain partnerships that create mutual dependencies and shared political interests with U.S. firms. These “new friends” subsequently increase lobbying activities on issues critical to their foreign partners’ interests. Using Huawei as a case study, the paper demonstrates how U.S. sanctions not only reshape a foreign firm’s political engagement within the United States but also transform its broader business strategy and political activities in Europe. This paper advances our understanding of coalition formation in trade politics by highlighting partnership formation as a strategic response to economic coercion. The third paper, coauthored with Christina Davis and Sayumi Miyano, examines how non-targeted multinational firms evaluate whether to continue business as usual during geopolitical conflicts. Following Russia’s invasion of Ukraine, hundreds of multinational corporations (MNCs) voluntarily withdrew from Russia even when policymakers were still debating the extent of sanctions. Through a survey experiment with Japanese firm managers conducted three months after the invasion, we investigate how peer effects influence support for severing business ties with Russia. Our findings show that information about withdrawal by firms from a diverse set of countries promotes peer conformity, which in turn increases support for similar actions. In contrast, information about ongoing business with Russia by Chinese firms fosters competition that reduces support for withdrawal. Market exposure moderates these reactions, although the concern about peer behavior does not appear to be driven by a reputation mechanism. This study shows how business actors perceive the strategic interplay of peer influence and market dynamics in the context of geopolitical conflicts.