How Do Firms Withstand a Global Economic Shock: Evidence from Within-Firm Responses

China’s Five-Year Plans (industrial policies targeting specific industries) displace US production/employment and heighten plant closures in the same industries. The shocks were not anticipated by the U.S. stock market, but firms in the treated industries suffer valuation loss afterwards. Firms adjust by shifting production to upstream or downstream industries benefiting from the boost, or offshoring to government-endorsed industries in China. Such within-firm adjustments offset the negative shocks among firms with pre existing toeholds in the “beneficiary” industries or production overseas, suggesting a novel role of diversification. Financial access and labor fluidity are instrumental for firms to with stand global economic shocks.