Reports
Discussion Papers
No.955 The Impact of the China-U.S. Trade War on China’s Outward Foreign Direct Investment
by Mi Dai
March 2025
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 access the U.S. market following the trade war.
Keywords: Outward foreign direct investment, China-US trade war, Tariffs
JEL classification: F13, F14, F21
PDF available at https://hdl.handle.net/2344/0002001293
Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.