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The Spillover Effect of the Trade War between Adversarial Dyads: Evidence from the Sino-US Investment Relationship

  • Kelan (Lilly) Lu
RESEARCH ARTICLE
  • 9 Downloads

Abstract

I built a political economy model to empirically explore the factors that could contribute to the cooperation between adversarial dyads, with special focus on the dyadic trade, dyadic FDI and their interaction. I use US-China relationship as a case study and investigate whether/how the tensions in the trade relationship between the US and China could strengthen or weaken the pacifying effect of bilateral FDI between the adversarial dyad. To empirically test my theory, I use historical data on all the adversarial dyads in the world from year 1980 to 2001 and empirically tested whether/how trade and FDI and their interactions influence adversarial states’ cooperation. I found that, with the decrease of bilateral trade, the pacifying effect of bilateral FDI strengthens for the adversarial dyads and weakens for non-adversarial dyads. I connect this with the current US-China trade war. I argue for an important role of the local governments and lobbying groups in the US in attracting Chinese FDI and promoting interstate cooperation. As bilateral FDI has become a shared constituency for the adversarial dyads, I further claim that FDI has a strong pacifying effect on the US-China cooperation in the context of trade war.

Keywords

Trade war Foreign direct investment Pacifying effect Adversarial states’ cooperation China-US relationship 

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Copyright information

© Journal of Chinese Political Science/Association of Chinese Political Studies 2018

Authors and Affiliations

  1. 1.Department of Political ScienceUniversity of South CarolinaColumbiaUSA

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