Does deglobalization affect the withdrawal of foreign-invested enterprises? -Evidence from the US-China trade conflicts

Abstract

Does deglobalization drive the withdrawal of foreign-invested enterprises from countries facing adverse shocks? This question has recently attracted significant attention, especially regarding multiple risks such as US-China trade conflicts. Using the 2018–2019 trade conflicts as a quasi-experiment and year-quarterly data at the prefecture level, we explore whether tariff increases lead to the withdrawal of foreign-invested enterprises from China. The results show that prefectures more exposed to U.S. tariffs experience a higher withdrawal for foreign-invested enterprises. This finding remains robust when considering confounding variables, placebo tests, and pre-trend tests. The results suggest that worsening economic conditions, exacerbated by tariff exposures, contribute to the withdrawal of foreign-invested enterprises. Furthermore, the heterogeneity analysis shows that this effect is particularly pronounced in prefectures with higher labor costs and greater dependence on exports to the United States. It is especially significant in high-tech industries and wholly foreign-invested enterprises. This effect is primarily driven by foreign-invested enterprises involved in general trade and intermediate goods. This study provides empirical insights into the relationship between deglobalization and the withdrawal of foreign-invested enterprises.