US sanctions and the reshaping of Chinese innovation strategies

Purpose As the China–US trade tensions escalate, the implementation of US sanctions has imposed severe restrictions on the innovation resources of Chinese firms. This study introduces the theory of peer effect to investigate whether US sanctions stimulate a homogenization of innovation strategies among Chinese companies in the same industry, thereby giving rise to an innovation peer effect. Design/methodology/approach This study utilizes a sample of 4,078 A-share listed companies from 2015 to 2021 and employs a multi-period difference-in-differences (DID) model for analysis. Findings The findings indicate that US sanctions significantly stimulate innovation inputs among companies in the same industry, but concurrently, they suppress innovation outputs. Moreover, a higher degree of internationalization weakens the promotion of innovation inputs by US sanctions and amplifies the inhibitory effect on innovation outputs. A high proportion of long-term loans offsets the negative impact on innovation outputs, whereas a high proportion of short-term loans diminishes the positive impact on innovation inputs. Research limitations/implications This study elucidates how external shocks impact companies’ innovation capabilities within the same industry, offering a fresh perspective on understanding the influence of China–US trade tensions on innovation among Chinese firms. Practical implications Chinese firms should view US sanctions-induced technological challenges as opportunities, fostering breakthrough innovations through industry-academia collaboration. Balancing risk and reward is also key when navigating technological innovation and global strategies. Originality/value This study comprehensively reflects the impact of the US sanctions on Chinese firm innovation. It lays the foundation for analyzing the transmission mechanism of other trade policies under the framework of trade friction theory.