The Bank for International Settlements has published a working paper examining how firms respond to geoeconomic pressure. Export controls encourage targeted firms to develop domestic technologies, sanctions on Russia redirect business toward firms outside the sanctioning coalition, and U.S. tariffs raise costs and compress margins for many American firms. The analysis uses large language models to examine corporate earnings calls and extract management’s explanations of business responses. These are reported links between policies and corporate actions, rather than independently established causal effects. Export controls generate contrasting responses in imposing and targeted countries. Firms in imposing countries report lost sales and lower margins, while targeted firms increase domestic investment and research and development to replace restricted inputs. This response is particularly prominent among Chinese firms facing U.S. controls on semiconductors and artificial intelligence. Sanctions on Russia similarly redistribute business opportunities. Firms in sanctioning countries predominantly report lost revenue and asset impairments, with European firms also facing energy cost shocks. Some U.S. energy suppliers benefit from replacement demand, while firms in China and India gain business from disrupted trading relationships. Indian firms also report benefits from discounted Russian crude oil. Tariffs mainly hurt U.S. firms dependent on imported inputs. Higher input costs lead firms to raise selling prices while absorbing part of the shock through lower profit margins. A smaller group of domestic producers gains sales and margins as competitors face higher costs. Foreign firms report weaker demand, uncertainty and production relocation costs, with European and Canadian firms emphasizing macroeconomic risks and Chinese firms emphasizing relocation. Reported supply chain adjustments in response to U.S. tariffs shift activity away from China toward destinations including the United States, Vietnam and Mexico. Tariff threats also influence corporate decisions before measures take effect.
Bank for International Settlements publishes research on how export controls, sanctions and tariffs reshape corporate investment and trade
The Bank for International Settlements has published research using corporate earnings calls to examine firms’ reported responses to geoeconomic pressure, finding that export controls encourage targeted firms, particularly in China, to develop domestic technology substitutes. Sanctions on Russia impose revenue and asset losses on firms in sanctioning countries while creating business opportunities for firms in China and India. U.S. tariffs raise imported input costs and squeeze many American firms’ margins, while uncertainty and relocation costs also hurt foreign firms and redirect supply chains.