Why Some Companies Handle Trade Wars Better Than Others

Understanding trade wars

Before examining why some companies fare better than others, it’s important to understand what trade wars entail. Hint: the answer is Trump’s supposedly favourite word: tariffs. As George Schultze, hedge fund manager and author of The Art of Vulture Investing, explains in Forbes: “The most basic definition of a tariff is a tax on imported goods. They can be used by governments for a number of reasons — to make domestic products more competitive by raising the price of imports, to protect jobs or even as a foreign policy tool to exert economic leverage on trading partners.” [3]

Schultze notes that while tariffs can accomplish certain policy goals, they also carry significant downsides: “They can make protected domestic industries less competitive and even hurt consumers through higher prices. They can also foment investor uncertainty when countries start going tit-for-tat, as we’re starting to see in the US’s trade relationships with China, Europe and other countries.” [4]

The 2018 US-China trade war provided a particularly illuminating case study because of its scale and the availability of detailed transaction data. According to Fan et al.’s research, which analysed more than 300 pairs of US and Chinese companies engaged in business both before and after the trade war began, the impacts varied dramatically based on several key corporate characteristics. [5]

Innovation shield

Perhaps the most striking finding from the research was the protective effect of innovation. Suppliers that were one standard deviation more innovative than their peers engaged in 32.48% more valuable transactions after tariffs were imposed [6]. This resilience manifested through several distinct corporate strategies.

Companies that prioritised R&D spending were better positioned to adapt to new trade barriers. The most notable example was Huawei, which responded to US technology restrictions by dramatically increasing its R&D investment. This allowed the company to develop its own chipsets and work toward self-sufficiency in critical technologies. The payoff was substantial — in 2018, Huawei applied for more patents than any other company globally, surpassing industry giants like Mitsubishi, Intel, and Qualcomm [7].

Diversifying technology sources through international partnerships emerged as another effective strategy. Drone manufacturer DJI established R&D centers in the US, Germany, and Japan, while also forming strategic collaborations with international universities like Polytechnic University of Turin [8]. These global connections provided access to talent and technologies that helped maintain the company’s competitive edge despite geopolitical tensions.

Some companies used innovative approaches to market intelligence to navigate trade challenges. Alibaba’s use of big data analytics from its e-commerce platforms to identify consumer behaviors and trends allowed for rapid product adaptation. Remarkably, Fan et al. found that Alibaba’s transactions with US buyers actually increased after the trade war began — a testament to the power of data-driven innovation [9].

Corporate social responsibility shield

The research revealed corporate social responsibility (CSR) as the second major factor in trade war resilience, with socially responsible suppliers maintaining 28.58% more valuable transactions than their peers [10]. This advantage manifested across several CSR dimensions. Companies with strong environmental practices benefited from enhanced reputations and operational efficiencies. Lenovo’s focus on reducing greenhouse gas emissions and using recycled materials in packaging earned it recognition as a sustainability leader, which in turn helped mitigate some of the negative impacts of trade conflicts [11].

Social investment programs created goodwill that translated into business resilience. Alibaba’s establishment of the Alibaba Foundation and its Poverty Relief Program, which focused on education and technological innovation [12], appeared to contribute to the company’s ability to maintain sales growth (albeit of a more limited variety than pre-tariffs) despite trade tensions [13].

Comprehensive CSR reporting built stakeholder trust during uncertain times. Huawei’s detailed annual sustainability reports provided transparency about its operations and social impact. Industry analysts suggested this transparency contributed to Huawei’s ability to navigate trade war challenges [14].

Political exposure

In contrast to the benefits of innovation and CSR, the research found that political connections created significant vulnerabilities. Suppliers with one standard deviation greater state ownership engaged in 32.65% less valuable transactions after tariffs were imposed [15]. Companies employed several strategies to mitigate this risk.

Establishing operations abroad reduced perceptions of government control. Xiaomi incorporated in the Cayman Islands, while Baidu opened technology labs in Silicon Valley. These moves helped distance the companies from direct Chinese governmental oversight while providing access to global talent pools.

International executive appointments also helped change perceptions. ByteDance’s hiring of former Disney executive Kevin Mayer as TikTok CEO, for example, demonstrated how leadership choices could reduce political associations. [16]

Global impact

The HBR research is focused on US-China trade tensions, but the lessons have broader applicability. The new US tariffs under the second Trump administration are causing panic the world over, with long-time trading partners no longer sure where they stand.

Irish Prime Minister Micheál Martin’s warning about impending US tariffs being “the most serious issue to face his country’s economy in a long time” underscores how localised these impacts can be [17]. With Ireland exporting €73 billion worth of goods to the US in 2024 — nearly a third of its total exports — the stakes are particularly high for certain industries and regions [18].

Why some companies handle trade wars better than others

The research presents a compelling blueprint for corporate resilience in today’s volatile trade landscape. As global economic tensions continue to escalate, companies must recognise that weathering trade wars requires proactive, strategic investments rather than reactive measures. The evidence clearly demonstrates that innovation serves as the first line of defence –– substantial R&D investments and advanced manufacturing capabilities can transform vulnerabilities into competitive advantages during trade conflicts.

Equally important is the realisation that corporate social responsibility has evolved from a nice-to-have ethical consideration to a critical strategic imperative. Robust CSR programs create tangible business value during geopolitical disruptions, fostering stakeholder trust and maintaining market access when competitors falter. Meanwhile, while government ties may offer short-term benefits, they emerge as significant liabilities when trade tensions flare. In an era where trade wars have become the new normal, resilience to the fallout may well determine which companies lead their industries in the coming decade and which fall by the wayside.