To safeguard its technological leadership, the U.S. has restricted domestic suppliers from exporting specific cutting-edge technologies to selected Chinese firms. Domestic firms affected by these export controls halt sales to Chinese customers, as intended, but struggle to establish new relations with alternative customers domestically or in politically aligned regions. As a result, domestic suppliers experience a $130 billion decline in market capitalization, along with reductions in profitability, employment, and bank lending. We also show how Chinese firms strategically respond to export controls. Overall, export controls impose significant costs on domestic firms producing the very technologies these policies intend to protect.

Protectionist policies intended to revitalize US chip manufacturing backfired, ulti- mately weakening the domestic workforce they aimed to rebuild. Instead of fostering talent growth, these measures diminished hiring for critical science and engineering roles, particularly in entry-level positions and at firms impacted by tariffs. Companies reliant on foreign talent reduced domestic hiring and shifted recruitment to countries with more favorable immigration policies. US protectionism also discouraged students from pursuing chip-related degrees, contracting the domestic talent pipeline. Our con- ceptual framework shows that high proportions of foreign workers and inelastic labor supply in these occupations contribute to the adverse effects of protectionist policies.

We study how financing frictions amplify and prolong the effect of economic shocks on export activity (e.g., export demand shocks) through a firm balance-sheet channel. In the presence of funding frictions, shocks to export performance can shape firms’ ability to finance new export transactions. To analyze the importance of this effect, we estimate how exporters propagate temporary shocks across their export destinations over time. Using transaction-level data on firm exports, we show that temporary exchange rate shocks to some export destinations have strong positive spillovers on firms’ subsequent level of exports to other destinations. These effects are not driven by economic links across firms’ export markets in different countries, captured using detailed product data, or export entry decisions. These spillovers are persistent and match the detailed predictions of the balance-sheet mechanism we propose. Our results suggest that this mechanism is significant for a broad range of firms and can help explain the volatility of export activity, which is significantly higher than the volatility of output.