US export controls and the restructuring of global value chains: An analysis of Japanese multinationals’ exits from China

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The economic confrontation between the US and China has been transforming global trade, foreign direct investment, and global value chains, particularly in technology-intensive industries. This column uses evidence from Japanese micro-level data to examine the effect of US export controls on the exit of multinational enterprises from China. The findings suggest that the increased intensity of US export controls since 2018 likely led to a higher probability of Japanese MNEs exiting China. Furthermore, specific export controls appear to have caused ripple effects throughout global value chains.

Since 2018, the US has tightened export controls, particularly in electronics, telecommunications, and semiconductors. One of the main goals of this tightening was to restrict China’s access to advanced US technology. Nevertheless, trade and FDI activities have continued. For instance, Tesla is building a new battery manufacturing plant in China, which is planned for completion in 2025. Many businesses and policymakers are interested in the effects of trade tensions between the US and China, particularly with regard to the export controls on advanced technologies.

In this column, we examine the impact of tightened US export controls on the exit of Japanese firms from China. We highlight the mechanism of increased production costs due to the greater difficulty in procuring foreign intermediate inputs in China presented in a recent study (Deseatnicov and Fukao 2024).

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