Global Supply Chain Adjustment under the US Sanctions: Firm-level Evidence

This study examines the impact of U.S. sanctions on global supply chains. Using a difference-in-differences approach, we analyze supplier-network adjustments of firms that are linked to sanctioned entities through supply chains. Our findings indicate that these firms generally expanded their supplier base and increased geographic diversification. We also uncover a pattern of heterogeneity in supply chain adjustment strategies based on political safety: firms in sanctioned countries tended to consolidate suppliers domestically, whereas firms in non-sanctioned countries shifted their sourcing to suppliers in politically and economically aligned countries, particularly those with favorable ties to the U.S. or involved in regional trade agreements. Additionally, high-tech firms exhibited a heightened sensitivity to political risk, leading to more substantial adjustment. Furthermore, firms with political connections with the U.S. government experienced fewer disruptions. Lastly, sanction risks led to a marked reduction in input specificity, and firms in sanctioned countries suffered significant declines in sales and profitability.