U.S. Export Controls and the Restructuring of Global Values Chains: An analysis of Japanese multinationals’ exits from China

Ivan Deseatnicov and Kyoji Fukao

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: The increased export controls on advanced technologies like semiconductors imposed by the U.S. and aligned countries targeting primarily China are accelerating technological decoupling. What are consequences of this process on global value chains (GVCs) dominated by the activities of multinational enterprises (MNEs)? To answer this question, we use Japanese microdata for the period 2017–2021. We find an increase in the exit of Japanese MNEs from China. Building on this observation, we hypothesize that this increase in exits may have been triggered by an increase in production costs brought about by a decline in the variety of imported intermediate inputs as a direct consequence of the increased export controls. We offer a simple theoretical framework to rationalize this mechanism, which guided us in creating an export controls index using a detailed review of U.S. Federal Register documents and input-output tables. Our empirical analysis of the probability of exit confirms that the reduction in imported intermediate inputs plays an important role in the behavior of Japanese MNEs.

Pages: 35 pages
Date: 2024-12
New Economics Papers: this item is included in nep-cna and nep-int
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