American companies operating in China are experiencing unprecedented challenges to new investment and profitability, driven by escalating geopolitical tensions, the ongoing trade war, and U.S. export controls.

According to a recent survey conducted by the U.S.–China Business Council, which polled 130 member companies between March and May, more than half of U.S. companies have no new investment plans in China this year—a record high that has not been observed in previous surveys.

This historic drop in investment intent comes amid deepening uncertainty surrounding U.S.–China relations and tariffs imposed under President Donald Trump, now seen as the dominant obstacles to forward planning by American businesses.

Compounding these concerns is China’s slowing economy, where weak domestic demand and industrial overcapacity are further eroding profitability for American corporations.

While a significant 82% of surveyed companies reported profits for 2024, fewer than half are optimistic about their future in China, largely due to worries about tariffs, deflation, and persistent policy unpredictability.

The risks for U.S. companies in China are growing, ranging from reputational and regulatory risks to political risks, all of which are now more pronounced compared to previous years.

The trade war’s impact is further evidenced by about 40% of companies reporting negative effects from U.S. export controls, primarily manifesting as lost sales, severed customer relationships, and reputational harm due to being perceived as unreliable suppliers.

Although the U.S. maintains that such measures are necessary for national security—banning the export of advanced high-tech products that could potentially enhance China’s military capacity—experts like Sean Stein have warned that these restrictions may backfire unless they are very precisely targeted, as companies from Europe, Japan, or China are quick to fill the market void left by American firms.

While recent high-level talks between U.S. and Chinese officials have led to a partial pullback from the most punitive tariffs and export restrictions, the underlying uncertainty remains; the two countries have yet to reach a more permanent trade agreement, which leaves American executives wary of committing new capital to China.

A record number of U.S. firms—27% of respondents, up from 19% the previous year—are actively planning to relocate operations outside of China, signalling a trend toward “economic decoupling” as companies seek to diversify risk.

Interestingly, concerns over China’s regulatory environment and lack of market access have been replaced in the top-five worries by challenges originating from the U.S. itself, a shift attributed to the increasing severity of American trade actions and policy uncertainty.

Nonetheless, almost all U.S. companies acknowledge they cannot stay globally competitive without their Chinese operations, underlining the complexity and depth of economic interdependence between the two superpowers.

While U.S.–China dialogue has reduced immediate trade hostilities, the environment for American investment in China remains highly unsettled, with companies citing both U.S. and Chinese actions as contributing to an environment of record-low confidence and new investment.

The ability of the U.S. and China to “keep competition under control” appears tenuous and contingent on the resolution of broader strategic and economic differences.

Based On A PTI Report