Samantha A. Vortherms, Assistant Professor, Department of Political Science, UC Irvine
Jiakun Jack Zhang, Assistant Professor, Department of Political Science, University of Kansas
The U.S.-China Trade War represents the most serious disruption to global supply chains since their emergence. The 2019 ‘year in a word’ was decoupling, according to the Financial Times. This paper is a first cut attempt to explore the determinants of economic decoupling. We investigate the impact of the Trade War on China-based foreign-invested enterprises (FIEs) using a new dataset. The dataset originates from the Ministry of Commerce, spanning all officially registered firms from 2014 to 2019. We measure decoupling by cross-referencing tariff lists with industry classifications to determine whether or not FIEs negatively impacted by the trade war shift production out of China (exit the dataset in 2018 and 2019). FIE exits accelerate in 2019. But we find that geopolitical risk factors such as tariff intensity and national origin are not significant predictors of FIE exit. Instead, we find that firm-level factors such as age, size, and tax haven registration significantly decrease the probability of exit. This suggests that the short-run decision for multinational firms to leave China is determined less by geopolitics than by availability of resources to mitigate heightened political risks. A zero-sum view of economic decoupling as primarily a national rivalry fails to capture the heterogeneous firm-level responses.