Geopolitical Legitimacy and Global Sourcing Amid Selective De-globalization: An Empirical Analysis of U.S. MNEs’ Sourcing Adjustments in China (2019–2023)

The 2018 U.S.-China trade war signaled the onset of selective de-globalization between the two nations. China's rapid ascent in technology has challenged U.S. global leadership, heightening concerns about China's competitive advantages and their potential implications for U.S. national security. In response, the U.S. implemented extensive punitive-based government interventions, such as tariffs, to curb and contain China's growth. Conversely, China adopted countermeasures to protect and support its economy and supply chains. This dynamic highlights a defining feature of selective de-globalization: the widespread implementation of various government interventions. These interventions have disrupted the stability of global supply chains, particularly those centered on China, forcing multinational enterprises (MNEs) to reassess their sourcing locations. Consequently, how firms adapt their sourcing behaviors to respond to government interventions under selective de-globalization has become a critical issue and the focus of this study. An increasing body of research has begun to explore the impact of government interventions on firms' sourcing behaviors and strategies in the context of selective de-globalization. However, significant gaps remain. Specifically, it is unclear which types of interventions play a decisive role in shaping firms' sourcing adjustments and how the mechanisms of different interventions exert distinct effects. Moreover, while existing research has analyzed the drivers of sourcing behaviors and strategies, a unified and systematic framework to understand the drivers, types, and outcomes of firms' sourcing behaviors and strategies under selective de-globalization is still lacking. These gaps provide the foundation for this study. Grounded in neo-institutional theory—particularly the concepts of isomorphic pressures and legitimacy—this study proposes a multidimensional geopolitical legitimacy framework to systematically explain the impact of selective de-globalization on firms' sourcing behaviors. By examining structural changes at the national, industry, and firm levels under selective de-globalization, the study redefines the content and implications of isomorphic pressures and legitimacy. The first and most critical dimension of the geopolitical legitimacy framework is government intervention. This study further identifies three main types of government interventions under selective de-globalization: punitive-based interventions (e.g., tariffs) and incentives-based interventions (e.g., public procurement localization, PPL policies) from the home country, and incentives-based host country interventions (e.g., financial grants). The framework also incorporates national security considerations at the industry level and home-country stakeholder’s expectations at the firm level. In addition, by integrating the concept of efficiency, the framework develops specific types of firms' sourcing behaviors and strategies. These behaviors and strategies can be broadly categorized into decoupling and coupling. Decoupling involves reducing reliance on host countries to achieve geopolitical legitimacy, while coupling entails maintaining or even enhancing efficiency by continuing operations in host countries. The two broad categories are further divided into four types: domestic decoupling, international decoupling, dual decoupling and dual coupling. Furthermore, the framework explores the relationship between firms' long-term sourcing strategies and performance outcomes. Empirically, this study analyzes data from U.S.-listed multinational high-tech firms from 2019 to 2023. The study is conducted in two stages: the first stage examines the relationship between government interventions and firms' sourcing behaviors. The findings reveal that both punitive- and incentives-based interventions significantly influence decoupling behaviors. For directional decoupling, tariffs are more strongly associated with domestic decoupling, while PPL policies are more closely linked to international decoupling. Additionally, the study investigates varying degrees of decoupling, distinguishing between partial and dual decoupling. The analysis shows that the effects of tariffs and PPL policies on dual decoupling are positively and significantly moderated by the industry's national security attributes, while the moderating effects of home-country ownership vary. The study also highlights the financial performance outcomes of different sourcing strategies. Specifically, the result indicates that firms adopting a domestic decoupling strategy achieve superior sourcing performance compared to those adopting international decoupling, dual decoupling, or dual coupling strategies. These findings contribute to and expand the existing literature in several ways. First, the study demonstrates the differentiated mechanisms through which various types of government interventions influence firms' diverse sourcing activities, making a significant contribution to the literature on selective de-globalization and firms' sourcing behaviors and strategies. Second, by examining the national security attributes of industries and firms' home-country ownership structures, the study offers deeper insights into how internal organizational attributes and external industry influences jointly interact with policies to shape firms' sourcing behaviors. Third, the study uncovers nuanced differences in the performance outcomes of sourcing strategies, providing actionable insights for policymakers and managers. These insights inform the development of sourcing strategies that effectively navigate the complexities of selective de-globalization.