Trade War Fallout: American Companies Report Minimal Investment Plans in China

US Companies in China Hit Record-Low Investment Plans Amid Geopolitics and Trade War Tensions

A recent survey by the U.S.-China Business Council (USCBC) reveals that American companies operating in China are slashing new investment plans to unprecedented lows, driven by escalating geopolitical risks, the ongoing U.S.-China trade war, and regulatory uncertainties.

 Conducted between March and May 2025 with 130 member companies, the findings underscore a sharp decline in business confidence and profitability, marking a significant shift from previous years.

 This comes against the backdrop of the second Trump administration's aggressive trade policies, including reciprocal tariffs and export controls, which have strained bilateral economic ties despite temporary de-escalations.

Key Findings from the USCBC Survey

• Record-Low Investment Plans: Over half of the surveyed companies reported no plans for new investments in China this year—the highest proportion ever recorded in the survey's history

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  This contrasts sharply with prior years, where investment intentions were more optimistic, reflecting a "worsening situation" as described by USCBC officials.

• Declining Business Confidence and Profits: Around 40% of companies cited negative impacts from U.S. export controls, including lost sales, damaged customer relationships, and reputational harm due to unreliable suppliers.

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  Profit expectations have plummeted due to China's slowing economy, weak domestic demand, and overcapacity in industries, making operations "less profitable now than they were years ago."

• Rising Risks: Companies highlighted increased reputational, regulatory, and political risks.

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  USCBC President Sean Stein noted, “Businesses in China are less profitable now than they were years ago, but risks, including reputational risk, regulatory risk, and political risk, are increasing.”

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  Vice President Kyle Sullivan added that the lack of investment plans is “a record high,” emphasizing the severity of the downturn.

Reasons for the Decline

The primary drivers include:

• Geopolitical Tensions and Trade War: The 2025 escalation under President Trump, with tariffs reaching up to 145% on Chinese goods and reciprocal measures, has created persistent uncertainty. Despite a mutual reduction in trade measures announced on May 12, 2025, following talks in Geneva and London, a permanent deal remains elusive, leaving companies hesitant to commit capital.

• U.S. Export Controls: Restrictions on high-tech exports, such as advanced computer chips and rare-earth magnets, have directly hurt U.S. firms, particularly in sectors like AI and semiconductors.

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  For instance, Nvidia has only partially resumed sales of its H20 chips to China under these rules.

• China's Internal Challenges: Slowing growth, overcapacity, and weak demand exacerbate the issues, pushing firms to prioritize other markets.

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  Broader analyses indicate that U.S. firms with exposure to Chinese customers, especially those with low R&D intensity or outsourcing dependencies, have seen firm value declines during trade conflicts.

Broader Implications

This trend signals deepening strains in U.S.-China economic relations, potentially reshaping global supply chains and trade networks.

 Reduced investments could lead to slower innovation in high-tech sectors, higher costs for U.S. consumers, and job impacts, echoing past trade war effects where U.S. exports to China in energy and semiconductors fell amid hardening geopolitics.

 Experts warn that without a stable trade framework, American businesses may continue diversifying away from China, aligning with trends since 2017, where countries like the U.S. have reduced geopolitical trade distances by 4-10%.

 However, European and American firms remain engaged in China's market despite challenges, suggesting a complex balancing act.

As of July 16, 2025, this development highlights the enduring fallout from the trade war, now intertwined with an "AI Cold War," urging policymakers to address export controls and tariffs to rebuild confidence.

 Investors and companies should monitor upcoming negotiations for potential relief.

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