Winners and losers in U.S.–China trade disputes: A dynamic compositional analysis of foreign direct investment

Abstract

Background: The trade conflicts between the United States and China have significantly disrupted global trade and economic growth. In today's globalized economy where the production of goods and services spans across multiple nations, these disputes have far-reaching consequences that extend beyond the involved parties and impact the broader global economy. Objective: We examine the effects of the U.S.-China trade disputes on multinational investment patterns in China and Southeast Asia. Methods: Using a dynamic compositional approach, we analyze data on firm-level greenfield foreign direct investment. Results: We observe European firms increasing their investments in China to enhance market penetration, while American firms are withdrawing, redirecting their focus toward Southeast Asia to mitigate dependence on the Chinese market. Conclusion: This shift highlights broader international business strategy trends amid geopolitical and economic changes. The results indicate significant transformations in global supply chains, shedding light on the extensive effects of U.S.–China trade tensions on global economic equilibrium and how these tensions are reshaping international investment and supply chain dynamics.