In the Middle: American Multinationals in China and Trade War Politics

Abstract

Which factors make some American multinational corporations (MNCs) take political action in response to the US-China Trade War and cause others to stay on the sidelines? We identify China-based subsidiaries of US firms to identify firms' political actions in response to the trade war. We combine data on firms' tariff exposure, economic actions in China, and political actions in the United States during the trade war. Together these data highlight the divergent strategies with which firms engage. Even though more than 63 percent of MNCs in our sample were adversely impacted by tariffs, only 22 percent voice opposition and 7 percent exit in response to the trade war. Our analysis reveals that US MNCs in China differ in their business models, ownership structure, experience in China, and size of capital investments. These firm-level factors determine the degree to which US MNCs are embedded in China. This in turn shapes how firms perceive political risk and choose from the menu of options to deal with the trade war. Size and age increase voice while joint-venture status decreases it.