Our study explores how the US governmental sanctions influences corporate pollution emissions.

    Empirically, using listed Chinese A-share firms spanning 2004 to 2022, we find that companies sanctioned by US government are able to obtain government environmental policy incentives, as evidenced by an increase in pollution emissions. It is further shown that this effect is more pronounced among firms that contribute more to local tax revenue, those that employ more local workers, and those that specialize in new businesses. Moreover, this impact is shown to be mainly due to increased corporate performance, increased innovation, and raised GDP growth. Our study contributes to the international trade uncertainty and ESG literature from the favor-exchange perspective of government-company relationship.