U.S. Electronics Equipment Suppliers Affected Most by Geopolitical Risk and Decoupling from China
The U.S. Federal Reserve Bank of New York recently published one of their staff reports, titled: Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls.
As nation states are posturing for technological leadership in the current geopolitical race , the U.S. government is "using export controls to deny rival countries, particularly China, access to domestic cutting-edge technologies."
Specifically, the report states: "the Bureau of Industry and Security (BIS), under the Department of Commerce, forbids U.S. companies from exporting goods and services to a list of Chinese firms (called Chinese targets) deemed to be a risk to U.S. national security and foreign policy interests."
In the paper, the Bank of New York studies the reconfiguration of supply chains and the associated real financial effects following introduction of export controls imposed by the U.S. government. The authors write, "First, we study the effects on the affected suppliers, namely the U.S. firms that supply goods and services to the Chinese targets. Then, in the second part of the paper, we discuss some strategic responses deployed by China after U.S. export controls."
For manufacturing companies and vendor supply chains based in the U.S., one portion of the report is particularly worth calling out, stating, "While aimed at stopping the transfer of U.S. technologies to China, export controls restrict the customer base of some domestic firms. As such, they may impose collateral damage on the same domestic firms creating the valuable technologies that the U.S. government is trying to protect."
Top 10 Affected U.S. Industries
The chart above displays the top 10 most affected industries. Data is based on the total number of affected U.S. suppliers in each industry. The report notes, the "industry classification is based on the two-digit SIC code."
Electronic equipment SIC 36 (Electronic and other Electrical Equipment and Components, except Computer Equipment) is the single, most affected supplier group, by a large margin. It is followed by industrial machinery, business services, instruments and related production supply, and transportation equipment rounding up the top five.