Geopolitical Tensions Redraw Global FDI Maps, but Supply Chains Resist a Rapid Exodus

A new ADB-led study finds that geopolitical tensions have significantly reduced foreign investment into China, with US greenfield FDI falling by about 52% since 2016, while some investment has shifted to Latin America and ASEAN. However, deeply integrated global supply chains remain difficult to relocate, limiting the scale of the much-discussed global investment reallocation.

A new study by the Asian Development Bank (ADB), Dartmouth College, Williams College, and the United Nations Conference on Trade and Development (UNCTAD) shows that rising geopolitical tensions are reshaping global foreign direct investment (FDI) patterns. However, the much-discussed shift of global production away from China is happening more slowly and unevenly than many expected.

Using data on greenfield investment projects across 203 economies between 2003 and 2024, the researchers examined how companies responded to growing tensions, particularly between the United States and the People's Republic of China (PRC). The findings suggest that while investment flows are changing, deeply interconnected global supply chains continue to limit large-scale relocation of production.

US Investment in China Drops Sharply

One of the study's strongest findings is the significant decline in US investment in China. Since tensions escalated in 2016, new US greenfield FDI projects in China have fallen by around 52%. The decline has been particularly severe in manufacturing, logistics, and other trade-dependent sectors that rely heavily on global value chains.

The research also found that tensions between China and other major economies, including Japan, the Republic of Korea, Australia, Canada, Europe, and Taipei, China, have led to similar investment declines. On average, investment from these economies into China fell by about 62% after geopolitical relations worsened.

These findings indicate that geopolitical risks are becoming a major factor in investment decisions, alongside traditional considerations such as labor costs, market size, and infrastructure.

Latin America Gains While ASEAN Sees Mixed Results

The study finds evidence that some investment is being redirected to alternative destinations. US investment in Mexico, Central America, and selected Caribbean economies increased by approximately 43% after 2016. These economies benefit from geographic proximity to the US market and trade agreements such as the USMCA and CAFTA-DR.

Contrary to common expectations, the researchers found no significant increase in overall US investment into ASEAN economies after controlling for broader economic trends. This suggests that Southeast Asia may not be absorbing as much investment relocation from China as widely believed.

Chinese firms, however, are investing heavily in new markets. Chinese FDI into ASEAN increased by about 128%, while investment into Latin America also rose sharply. This points to a broader strategy by Chinese companies to diversify operations and reduce exposure to geopolitical risks.

Why Supply Chains Are Hard to Move

A key message of the report is that global supply chains remain highly resilient. The sectors most affected by geopolitical tensions are also the sectors that are hardest to relocate.

Trade-exposed and efficiency-seeking investments, especially in manufacturing, depend on established supplier networks, skilled workers, logistics systems, and infrastructure built over decades. As a result, companies cannot easily shift production to new locations even when political risks increase.

The study concludes that the "great reallocation" is happening mainly in less integrated activities, while highly interconnected production networks remain largely anchored in existing locations. In other words, geopolitical pressures are influencing investment decisions, but economic realities continue to shape where businesses operate.

What This Means for Policymakers, Development Partners, and Business

For governments, the findings highlight the need to strengthen competitiveness rather than rely solely on geopolitical alignment. Countries hoping to attract diverted investment must improve infrastructure, logistics, workforce skills, regulatory stability, and ease of doing business.

For development partners such as multilateral development banks and international agencies, the report suggests new opportunities to support countries seeking to attract investment. Financing transport networks, industrial zones, digital infrastructure, and trade facilitation programs could help emerging economies benefit from changing investment patterns.

For private-sector stakeholders, the study presents both opportunities and risks. Firms are increasingly seeking diversified supply chains and new production locations, creating opportunities in economies such as Mexico, Costa Rica, Vietnam, and Malaysia. However, companies must also recognize that relocating production can be costly and complex due to deep supply-chain dependencies.

The report recommends further research into technology, manufacturing, and clean-energy sectors, where geopolitical competition is likely to intensify. It also calls for policies that strengthen economic resilience while preserving the benefits of global integration. As geopolitical fragmentation grows, the challenge for governments and businesses will be finding the right balance between security, efficiency, and long-term growth.