University of Illinois at Urbana-Champaign, United States
While geopolitical conflicts, including trade wars, have garnered substantial scholarly attention in recent years, the impact on firms not directly involved in such conflicts remains underexplored. We examine how MNEs from third countries may respond to trade wars by capitalizing on the potential for positive spillovers: where trade wars prompt the scaling up of third-country subsidiary operations in the involved countries. We further explore how the strategic responses of third-country MNEs to the opportunities presented by a trade war can be enhanced by the operational flexibility manifest in parent-MNE multinationality, the resources and networks embedded in local partners, and the presence of bilateral economic agreements. Employing the US-China trade war as an empirical context, our panel data encompass 3,675 Chinese subsidiary operations for outsider MNEs hailing from 51 countries that yields 14,700 annual subsidiary-level observations to conduct difference-in-differences analysis. The empirical results indicate that third-country MNEs expanded their Chinese operations in response to the US-China tariff conflict, and that these strategic responses were pronounced for subsidiaries with highly-multinational parents, local partnerships in the involved country, and a home-host country bilateral agreement.
