Geopolitical tensions are increasingly reshaping global markets by altering competitive dynamics in the host country. This study investigates how domestic firms and non-targeted multinational enterprises (MNEs) respond to market voids created when geopolitical tensions target specific foreign firms. Theoretically, we argue that geopolitical tensions generate host country sentiments that shift competition from a primarily capability-driven to a sentiment-based, giving domestic firms a competitive edge over other foreign entities in filling market voids. Using the 2017 Terminal High Altitude Area Defense (THAAD) crisis—a quasi-experiment disrupting South Korean-dominated cosmetics market in China—we found that Chinese domestic firms introduced significantly more new products post-THAAD compared to both targeted South Korean and non-targeted foreign rivals. However, this effect was weaker for domestic firms with foreign investments or more local market experience. By highlighting the role of sentiment-driven competition, this study advances our understanding of how geopolitical tensions reshape competitive dynamics beyond traditional market factors.