The Effect of Korea’s FDI in the United States on Korea’s Exports to China

Purpose – This study empirically analyzes the effect of Korea’s increased foreign direct investment (FDI) in the US and decreased FDI in China on Korea’s exports to China amid intensifying US–China strategic competition. By segmenting the analysis period, this study identified whether the temporal characteristics linked to this geopolitical rivalry emerged. Design/Methodology – This study categorized FDI into total, manufacturing, and semiconductor FDI using a Generalized Linear Model. The analysis period was divided into three segments assuming that the US–China strategic competition began in 2013: the entire period (2000 Q1– 2023 Q4), Period 1 (2000 Q1–2012 Q4), and Period 2 (2013 Q1–2023 Q4) to examine temporal characteristics. Findings – Korea's manufacturing and semiconductor manufacturing FDI to the US was a substitute for Korea’s exports to China. Period-specific analysis revealed temporal characteristics of US–China strategic competition. Notably, in the semiconductor sector—a key area of the US–China strategic competition—Korea’s semiconductor manufacturing FDI to the US had a pronounced negative effect on exports to China during the strategic competition period. Originality/value – Existing studies analyze the effect of bilateral FDI between two countries on trade volumes. Empirical research examining the dynamic relationship between investments and trade in three or more countries is scarce, with few studies rigorously investigating the long-term correlation between investments and trade. Most of these studies incorporate period- specific analyses that account for environmental shifts affecting economies, such as US–China strategic competition.