The Impact of Due Diligence Legislation on International Trade and Business: Analysis of Potential Trade‐Offs

ABSTRACT As countries increasingly adopt due diligence legislation to promote human rights, labor standards, and environmental sustainability in global value chains, a complex dilemma arises. While these laws commendably aim to address moral and political issues in international trade, they may also impose significant costs on companies, potentially disincentivizing investment and trade. This study examines the impact of due diligence laws on international trade and business, analyzing some 60 cases. We explore their unintended consequences, including the potential withdrawal of investors from partner countries, reduced trade, including strategic commodities, and increased costs of compliance leading to competitiveness concerns. Our research categorizes different forms of legislation, investigating whether current due diligence laws are well‐designed to achieve their goals without producing unwanted side effects. We end with a brief set of suggestions for a future research agenda.