Geopolitical rivalry and FDI location choice: evidence of strategic avoidance among Chinese, Japanese, and Korean firms during the first Trump era

This study examines how the outward FDI (OFDI) location choices of Chinese, Japanese, and Korean firms shifted amid rising geopolitical tensions during the first Trump administration. Using project-level data from fDi Markets covering 4020 greenfield investments in 61 countries, it identifies a pattern of geopolitically driven mutual avoidance. After 2017, Japanese and Korean firms became less likely to invest in countries with strong Chinese FDI presence, especially in R&D and manufacturing, while Chinese firms similarly avoided co-locating with Japanese and Korean firms. These patterns indicate that firms prioritized mitigating geopolitical and reputational risks over agglomeration benefits, leading to a decoupling of investment patterns. The study introduces “geopolitically driven FDI avoidance” as a counterpart to agglomeration theory, offering micro-level evidence of global value chain fragmentation under systemic shocks and highlighting implications for firms and policymakers navigating an increasingly bifurcated global investment environment.