Battle of the giants: Inspecting how the U.S.–China trade war is shaking up FDI inflows in the ASEAN+3

Cheah, Wan Ching and Chuah, Jolin and Ting, Yi Ernn (2025) Battle of the giants: Inspecting how the U.S.–China trade war is shaking up FDI inflows in the ASEAN+3. Final Year Project, UTAR.

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Abstract

This study examines how tariffs and trade liberalization affect total FDI inflows to ASEAN+3 economies. Beyond this, it also highlights the main contribution of exploring the role of GVC integration and provides a closer analysis of sectoral FDI inflows, with particular attention to the manufacturing and services sectors. The analysis covers total trade data from 2010 to 2022 and sectoral data for the manufacturing and services sectors from 2017 to 2022. The research is motivated by the impact of the US–China Trade War, which has reshaped global trade dynamics and disrupted value chains. To fill in the research gap, this study focuses on how trade tensions have influenced sectoral FDI inflows during the recent period. This study employs six augmented Gravity Models to examine the determinants of total FDI inflows and to provide a deeper analysis of sectoral FDI. The empirical analysis indicates that tariffs are not the primary factor influencing total FDI inflows; however, their effects are more apparent in the manufacturing sector. In contrast, trade liberalization serves as the key driver of FDI across ASEAN+3, consistently driving inflows in the contexts of total trade as well as GVC integration. The study finds that rising U.S. tariffs affect sectoral FDI in ASEAN+3 in opposite ways. Manufacturing FDI may increase as firms relocate to countries with more costefficient production networks, while services FDI tends to decline. This difference reflects the nature of GVCs where manufacturing responds to production costs, whereas services depend on globally dispersed end-user demand rather than local production sites.

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