RECIPROCITY BETWEEN US AND CHINA FOREIGN DIRECT INVESTMENTS: CREATING CONFLICT OR COOPERATION?

Abstract

In international relations, reciprocity is a major motivator behind countries and their actions in the world economy. Despite its importance, there is little literature covering reciprocity in a US-China direct investment framework. This paper analyzes the 2010 – 2012 slowdown of U.S. foreign direct investments (FDI) flow into China and shows that the tense political climate between the nations at the time was due to misunderstanding and underlying reciprocity issues. Through analyses of case studies and economic trends, this research finds that negative reciprocity as an FDI strategy is unbeneficial and even detrimental for both states, resulting in slowdown of FDI flow, distrust, and even lost competition. On the other hand, positive reciprocity, instead of negative, was tested to see if it is a beneficial US-China investment strategy, and this research finds that even positive reciprocity is not fungible due to the two nations’ unequal markets and strong levels of distrust. Overall, this research emphasizes the benefits a strong US-China direct investment relationship can have not only for each country but also for global stability. It highlights the importance the U.S. keeping an open door strategy as the best way to encourage a more cooperative, trustworthy, and reciprocal relationship with China.