14375: Impact of Targeted Sanctions on the Continuity of Buyer-Supplier Relationships (session 25577)

This study explores the impact of targeted sanctions on the continuity of buyer-supplier relationships when legal avenues for continued sourcing from sanctioned suppliers exist. We focus on targeted sanctions by the U.S. on Chinese firms between 2018 and 2022. Utilizing a difference-in-differences analysis, we compare the continuity of buyer-supplier relationships between sanctioned and unsanctioned suppliers with the same group of global buyers. Our findings reveal that buyer firms are 19.2% more likely to sever ties with sanctioned Chinese suppliers. Furthermore, this effect is heightened for buyers with high technological dependence on the U.S. and reduced for those with high market dependence on China. In addition, the findings also suggest that when navigating resource trade-offs during sanctions, firms assess potential losses and gains by considering their relative dependencies on sanctioning and sanctioned countries, as well as the criticality of resources—prioritizing technological supplies over market access in their supply chain decisions. This study deepens the understanding of how institutional changes driven by geopolitical tensions shape global sourcing strategies, emphasizing the influence of location-specific dependencies in guiding global buyers' decisions to “take sides” during these conflicts. Our findings offer practical insights for managers on managing geopolitical risks in global supply chains and informs policymakers about the unintended consequences of overcompliance with sanctions.

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