How Important Are the US-China Trade War to FDI Flows into ASEAN Countries?

Yanuar Yanuar, Agus Zainul Arifin, Nuryasman Mn and Darryl Darryl

Chinese Economy, 2026, vol. 59, issue 3, 249-261

Abstract: This study examines how the U.S.–China trade war reshaped investment dynamics in ASEAN through trade and FDI diversion channels. Using a two-stage least squares (2SLS) estimation for eight ASEAN economies from 2012 to 2023, the analysis identified the causal impact of USA tariffs on Chinese goods on both USA imports from ASEAN and Chinese FDI inflows. The first-stage results confirm significant trade diversion effects, as higher US tariff on Chinese products diverted USA imports toward Cambodia, Vietnam, and Thailand. The second-stage findings reveal that these redirected trade flows stimulated Chinese FDI inflows to Indonesia, Thailand, and the Philippines, supporting the tariff-jumping FDI hypothesis. The results highlight ASEAN’s strategic position as a beneficiary of global supply chain resolutions. The study contributes to the literature by integrating trade diversion and tariff jumping FDI theories in a unified empirical framework, offering insights for regional policymakers to sustain redirected investment inflows.

Date: 2026
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DOI: 10.1080/10971475.2025.2588858

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