Who Bears the Costs of Technology Sanctions? Evidence from Global Smartphone Markets, joint with Shiyuan Li and Frank Verboven

CEPR Discussion Paper n°21405

U.S.–China trade tensions have led to sanctions on major Chinese firms, with potential spillovers to third-country markets. We study the effects of U.S. restrictions on Huawei’s access to key U.S. technologies in smartphone markets in the United States and Europe. Using product-level data, we show that the sanctions substantially reduced Huawei’s sales and prices, consistent with a negative demand shock. To quantify equilibrium effects, we develop a differentiated-products oligopoly model in which the sanctions degrade two key Huawei product attributes: access to Google Mobile Services and 5G chipsets. We find that the sanctions were effective in reducing Huawei’s profits, despite its divestiture of Honor to mitigate losses. While U.S. consumers are largely unaffected, European consumers experience considerable welfare losses. These findings indicate that firm-targeted sanctions can shift welfare losses away from the sanctioning country and onto third-country consumers.