The Effect of Trade Wars on Foreign Direct Investment: Evidence from the U.S.–China Economic Conflict

Abstract With a particular focus on the U.S.-China trade battle from 2016 to 2024, this article investigates the impact of trade wars on foreign direct investment (FDI). We evaluate how trade policy volatility and geopolitical rivalry influence global capital movements by looking at bilateral trade indicators, foreign direct investment flows, and global spillover effects. Through the use of empirical data and comparative analysis, the study concludes that third-party countries frequently benefit from trade diversion and increased foreign direct investment (FDI), whereas direct participants in trade conflicts suffer from decreased trade volumes and disturbed investment flows. The results highlight the need for governments to consider both immediate losses and long-term changes in global investment patterns when economic conflicts arise.