The effects of geopolitical supply chain shocks on policy preferences of firms

Do geopolitical shocks to supply chains make firms retreat from globalisation? Using new survey data from 1,855 manufacturing firms in Japan, this column shows that firms support diplomatic solutions regardless of whether supply chain disruptions originate from an ally or a non-ally country. Geopolitical shocks are associated with lower support for diversification subsidies, compared to shocks stemming from natural disasters. Overall, it finds support for the commercial peace conjecture that firms seek diplomatic solutions to mitigate geopolitical risks.