Since the initiation of the US-China trade war in the latter half of the 2010s, the US government has strengthened export control regulations. Specifically, many Chinese firms have been added to the Entity List (EL), a list of parties of concern. These regulations have decoupled US firms from Chinese firms in supply chains. For example, Crosignani et al. (2024) found that US firms that had supplied Chinese firms included on the Entity List were more likely to terminate their relationships with Chinese customers – both those listed and not listed. Furthermore, Chinese firms in the Entity List reduced their relationships with US suppliers and established new connections with alternative Chinese suppliers.
In May 2019, the US added Huawei Technologies Co., Ltd. (hereafter, Huawei) and its 68 affiliates to the Entity List. Huawei is a Chinese company that designs, develops, manufactures, and sells telecommunications equipment, consumer electronics, and smart devices, such as smartphones. Furthermore, since 2020, the US government has expanded the Foreign Direct Product Rule (FDPR) to restrict the exports of cutting-edge semiconductors from third countries to Huawei and its affiliates on the Entity List. These extended FDPRs have stopped exports of cutting-edge semiconductors to Huawei. The major manufacturers of such products, such as Korean and Taiwanese firms, have stopped supplying cutting-edge chips to Huawei since September 2020.
Japanese firms, on the other hand, are not major producers of cutting-edge semiconductors and thus are not subject to the above-mentioned direct effects of the regulations. However, before the introduction of the extended FDPR, Japanese firms were the top suppliers to Huawei in terms of the number of parts for Huawei smartphones (Huawei P30 Pro). In terms of input value, Japanese firms were the second-largest group of suppliers following Chinese firms. Therefore, Japanese suppliers would suffer adverse impacts on their exports to Huawei if Huawei were to stop production due to the termination of imports of cutting-edge semiconductors.
Although many studies have examined the trade effects of tariff wars, few have explored export control regulations in the context of the US-China trade war. Among these few, some studies analyse the impact of tightened US export restrictions on Chinese firms’ innovation, including the aforementioned study of Crosignani et al. (2024), which examines the effects on transactions between US and Chinese firms. Furthermore, there has been little analysis of the impact of the tightening of US export restrictions on third-country firms, such as those in Japan, in terms of their exports and sales.
Against this backdrop, in Hayakawa and Ito (2025) we empirically examined the indirect effect of US export regulations on exports by Japanese suppliers to Huawei. Unlike Crosignani et al. (2024), we focus on the impact on suppliers in a third country (i.e. Japan). Moreover, although there are some product-level studies investigating the effects of US export regulations on export from Japan to China (Hayakawa et al. 2023, Ando et al. 2024, Hayakawa et al. 2025) or from South Korea to China (Kim and Cho 2024) based on customs statistics, in Hayakawa and Ito (2025) we utilise firm-level data. This allows us to investigate the heterogeneous effects across firms as well as the average effects, controlling for various firm characteristics.
As mentioned above, Japanese suppliers do not export cutting-edge semiconductors that are subject to the Foreign Direct Product Rule. Therefore, if they are affected by the US export restrictions on China, it would be an indirect impact, which might be termed collateral damage. To investigate such collateral damage, we identified 17 Japanese firms that were major suppliers to Huawei and applied the difference-in-differences method using Japanese firm-level data from 2016 to 2021. We focus on firms in telecommunications equipment and electronic components that had directly exported to China between 2016 and 2018. Among these, the above-identified 17 firms and their affiliates were designated as the treatment group, and the other firms were designated as the control group.
One empirical challenge is that Huawei’s suppliers should have different characteristics from those of other firms. As Huawei is a large company, it only selects large and highly productive firms as suppliers. Indeed, among the firms analysed in Hayakawa and Ito (2025), treatment group firms tend to be larger than control group firms, as expected. Therefore, we match each treatment group firm with a firm in the same sector that shares a similar size and other characteristics as the treated firm in 2018. Specifically, propensity scores are estimated using the covariate-balancing propensity score estimator. Then, using weights based on those scores, we estimate the average treatment effect on the treatment group firms via a weighted least squares regression.
The results confirmed that the US government’s addition of Huawei to the Entity List, along with the strengthening of the Foreign Direct Product Rule, reduced the exports of Japanese Huawei suppliers to China in 2020 (Figure 1), particularly their exports to unaffiliated firms in China. Suppliers that were heavily engaged in research and development (R&D) activities further reduced their exports, especially in terms of inter-firm exports to China, in 2021. One possible interpretation of this result is that suppliers of low-tech inputs can more easily find alternative customers, that is, customers other than Huawei, because their inputs are less customised. Thus, inter-firm exports to China recovered by 2021. By contrast, since high-tech input suppliers need more time to customise their inputs for other customers, they still exhibited a decrease in their inter-firm exports to China in 2021. These results imply that the negative effects of export control regulations are greater for suppliers that either produce or provide high-tech or customised inputs.
Figure 1 Effects of the US regulations on Japanese firms’ exports to China: Before and after the addition of Huawei to the Entity List
Notes: The figure shows the estimated differences in the log of exports to China between Huawei suppliers (treated firms) and other firms (control firms) before and after Huawei was added to the Entity List. The blue bar represents the 95% confidence interval. The estimates are based on a weighted OLS regression, using the weights calculated from the estimated propensity score for each firm.
Source: Hayakawa and Ito (2025) Figure 3 (a).
On the other hand, while Japanese suppliers to Huawei did not clearly increase their total exports to countries other than China after Huawei was added to the Entity List, they significantly increased exports to their overseas affiliates located in countries or regions outside China by 2021 (Figure 2). This suggests a growing preference among Japanese Huawei suppliers for less risky alternatives. Furthermore, the study found that total sales of Japanese Huawei suppliers remained stable or even increased. Thus, it appears that, so far, US sanctions on Huawei have not had a significant effect on the overall performance of Japanese suppliers to Huawei.
Figure 2 Effects of the US regulations on Japanese firms’ intra-firm exports to other regions
Notes: The figures show the estimated differences in the log of exports to all regions except China between Huawei suppliers (treated firms) and other firms (control firms) before and after Huawei was added to the Entity List. The blue bar represents the 95% confidence interval. The estimates are based on a weighted OLS regression, using the weights calculated from the estimated propensity score for each firm.
Source: Hayakawa and Ito (2025) Figure 5 (a).
To summarise, this column focuses on the impact of export restrictions in the US-China trade war on the supply chain, particularly on suppliers in third countries (Japan), and provides important insights into understanding the complex ripple effects of export restrictions. Export restrictions on Huawei temporarily reduced Japanese suppliers’ exports to China, but the impact was limited. However, in response to the tightening of restrictions, Japanese suppliers tended to shift to less risky export destinations, suggesting that the restrictions prompted changes in their export behaviour.
If trade restrictions continue to spread between the US and China, or to other countries, firms need to develop new export destinations, which will incur higher costs associated with such diversification. Furthermore, if changes in the export behaviour of individual firms damage the efficiency of the supply chain as a whole, it could lead to stagnation in global trade. Governments in each country need to provide clearer information on regulations and strengthen their support for the development of new export destinations and business partners.
The Supply Chain Agreement, which came into effect in 2024 under the Indo-Pacific Economic Framework (IPEF) launched in May 2022 under the Biden administration, stipulates “cooperation to strengthen supply chains and promote transparency in the actions and regulations of each country.” However, with the second Trump administration taking office in 2025, it is unclear whether the IPEF-related initiatives by each country will progress. While multilateral cooperation involving the US is desirable, it is crucial to advance cooperation among governments by leveraging existing frameworks such as bilateral and regional trade agreements.
Authors’ note: The main research on which this column is based (Hayakawa and Ito 2025) first appeared as a Discussion Paper of the Research Institute of Economy, Trade and Industry (RIETI) of Japan.
References
Ando, M, K Hayakawa and F Kimura (2024), “Supply Chain Decoupling: Geopolitical Debates and Economic Dynamism in East Asia”, Asian Economic Policy Review 19(1): 62-79.
Crosignani, M, L Han, M Macchiavelli and A F Silva (2024), “Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls”, Staff Reports 1096, Federal Reserve Bank of New York.
Hayakawa, K and K Ito (2025), “The Collateral Damage of US Export Control Regulations on Japanese Suppliers’ Exports to China”, Discussion papers 25061, Research Institute of Economy, Trade and Industry (RIETI).
Hayakawa, K, K Ito, K Fukao and I Deseatnicov (2023), “The Impact of the Strengthening of Export Controls on Japanese Exports of Dual-Use Goods”, International Economics 174: 160-179.
Hayakawa, K, F Kimura and K Yamanouchi (2025), “The Trade Effects of Export Control Regulations in Japan”, Journal of the Japanese and International Economies 77: 101366.
Kim, H and J Cho (2024), “The Impact of US Export Controls on Korean Semiconductor Exports”, KDI Journal of Economic Policy 46(3): 1–23.