Geopolitics and Innovation: A Systematic Literature Review of Firm Responses to the U.S.–China Trade War

Haram Lee ()

Journal of Business and Strategic Management, 2025, vol. 10, issue 14, 44 - 62

Abstract: Purpose: This study aims to systematically examine how the U.S.–China trade war has shaped firm-level innovation activities. It identifies key risk factors triggered by geopolitical tensions, analyzes firm-level responses, and evaluates long-term strategic shifts in innovation and industrial strategies. Methodology: The study employed a systematic literature review (SLR) approach following established guidelines for transparent and replicable synthesis. A structured search across ScienceDirect, JSTOR, and Emerald databases was conducted using Boolean keyword combinations related to the trade war and innovation. A total of sixteen empirical studies were identified and analyzed descriptively, focusing on theoretical mechanisms, empirical findings, and contextual variations. Findings: The review finds that the trade war introduced substantial trade policy uncertainty (TPU), producing heterogeneous impacts across firms and sectors. Financially constrained and export-dependent firms reduced R&D and experienced declines in patent quality, while larger firms and those with state support increased innovation. Common adaptive responses included geographic diversification of R&D, ESG-driven innovation, and the pursuit of indigenous technologies. TPU thus functions not only as a constraint but also as a conditional driver of “precautionary innovation” aimed at reducing foreign dependence and securing long-term competitiveness. Unique Contribution to Theory, Policy and Practice: This study provides one of the first systematic syntheses of firm-level innovation responses to the U.S.–China trade war. It contributes to theory by framing trade policy uncertainty as both a deterrent and a stimulus to innovation. For policymakers, it highlights the importance of coordinated industrial policies that enhance resilience and technological self-reliance. For practitioners, it offers insights into how firms can transform external shocks into opportunities for long-term strategic adaptation and innovation-led competitiveness.

Keywords: U.S.–China Trade War; Firm Innovation; Trade Policy Uncertainty; Systematic Literature Review; Geopolitical Competition (search for similar items in EconPapers)
Date: 2025
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