Financial Sanction Spillovers and Firm Interdependence

States increasingly outsource coercion to the market, using sanctions to deter private actors from dealing with blacklisted entities. Despite the key role of such intermediaries, research on economic statecraft is ambiguous about the effect and boundaries of such actions on market participants. We analyze the impact of the Trump administration’s actions against Chinese tech giant Tencent. Leveraging an event-study, we find that sanctions negatively impact targets and spread to co-nationals. We also test a novel spillover mechanism: firm interdependence. Tencent acts as an investor in other companies and provides a technological platform for businesses unaffiliated with the firm. Both sets of firms, which include American tech companies, are negatively affected. The paper highlights the need for scholarship to incorporate firm interdependencies into theories of economic statecraft, especially as export controls, sanctions, and tariffs target industries marked by highly complex supply and financial chains.