Why some companies weather trade wars better than others

In 2018, the U.S. government levied tariffs affecting more than $250 billion of Chinese products. As a result, many American buyers began turning to alternative suppliers to avoid the significant new costs associated with purchasing from China. Recent research found that transactions between U.S. buyers and Chinese suppliers fell by more than 18% immediately following the start of the trade war. However, the study also found that not all companies were affected equally: Chinese firms that were more innovative or more socially responsible were more likely to retain their U.S. buyers, while buyers were more likely to distance themselves from Chinese suppliers with stronger local political ties. To boost their resilience in the face of trade wars, suppliers should prioritize innovation and CSR and exercise caution when entangling themselves in local politics, regulators should support these efforts, and buyers should consider their dependence on suppliers when conducting risk assessments and evaluating their resilience.