The Impact of the China-U.S. Trade War on China’s Outward Foreign Direct Investment

Mi Dai

No 955, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper examines the impact of the China-U.S. trade war on China’s outward foreign direct investment (OFDI) at the firm level. We use newly released data on the number of foreign subsidiaries of publicly listed Chinese firms up to December 2023, and construct firm-level exposure to trade-war tariffs for both outputs and inputs. Our findings indicate that higher U.S.tariffs on Chinese exports and higher Chinese tariffs on U.S. inputs have led to an increase in OFDI by Chinese firms. This effect is particularly pronounced for investments in ASEAN countries and is also evident for investments in Mexico. However, we find no increase in Chinese investment in the U.S. Overall, our results align with recent media reports suggesting that Chinese firms increasingly use third countries, particularly low-wage developing nations, as “bridges” to accessthe U.S. market following the trade war.

Keywords: Outward; foreign; direct; investment|China-US; trade; war|Tariffs (search for similar items in EconPapers)
JEL-codes: F13 F14 F21 (search for similar items in EconPapers)
Date: 2025-03
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Published in IDE Discussion Paper = IDE Discussion Paper, No.955. 2025-03

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