Techno-nationalism and cross-border acquisitions in an age of geopolitical rivalry

We study the U.S.–China rivalry in the context of geopolitical techno-nationalism, the use of technology policies to develop or maintain geopolitical advantage. We follow the international relations literature to argue that an incumbent hegemon, when threatened, seeks to maintain the balance of power through a combination of domestic policies and external alliances. We examine the effects of two policies on Chinese firms’ technology acquisitions: China’s Made in China 2025 (MIC2025), initiated in 2015, and the U.S. response in 2018 through the Foreign Investment Risk Review Modernization Act (FIRRMA). We argue that MIC2025 encouraged Chinese companies to acquire U.S. technology companies, and that this was perceived as a threat in the U.S., which countered through FIRRMA to limit such acquisitions. Using acquisition data from 2010 to 2022, we find that MIC2025 increased Chinese firms’ acquisition announcements in critical technology sectors in the U.S., but FIRRMA had a negative effect on both announcements and completions. We also find evidence suggesting spillover effects of FIRRMA to countries that are U.S. allies, but only if they are innovation leaders with low trade dependence on China. We conclude that geopolitical techno-nationalism shapes cross-border investments in critical technologies in both the U.S. and some allies.