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US-China trade war
ChinaDiplomacy

US-China trade war did not bring American firms home, research finds

  • Foreign investment into China hit a record US$144.4 billion in 2020, while firms exiting China did not leave because of tariffs, US researchers say
  • Decoupling has been ‘greater in the minds of politicians and pundits than the reality of firms in China’

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US researchers found that tariffs hurt the American economy and did not force China to change its policies. Photo: Shutterstock
Sarah Zheng
The trade war between the United States and China failed to prompt American businesses to leave the Chinese market, with costs from tariffs instead passed along to consumers, new research found.
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In a paper published on the preprint platform SSRN this month, researchers Samantha Vortherms and Jiakun Jack Zhang argued that US tariffs on billions of dollars’ worth of Chinese products – launched in mid-2018 to bring US companies home – hurt the US economy and did not successfully pressure China to change its economic policies.

Despite tit-for-tat tariffs and intensifying political hostility between the powers, businesses in each of the countries remained “deeply integrated” with the other and foreign investment into China still hit a record US$144.4 billion last year, they said.

Vortherms, from the University of California in Irvine, and Zhang, from the University of Kansas, said 46 per cent more US-funded subsidiaries in China closed in 2018 compared with the year before, but less than 1 per cent of that rise was caused by US tariffs.

“Our findings show that US and allied firms were not more likely to exit China, suggesting that foreign direct investment outflows do not ‘follow the flag’.

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