Key Takeaways
- In 2023, U.S. affiliates in China generated over $640 billion in revenue, with about 70 % ($441 billion) sold to the Chinese market.
- U.S. firms’ presence in China provides access to top Chinese STEM talent, fuels reverse technology spill‑overs that benefit U.S. R&D, and helps lock‑in American technologies in Chinese supply chains.
- Sales in China correlate positively with higher R&D intensity, enabling greater reinvestment in innovation at home.
- Geopolitical tensions have led to declining employment and profitability for some U.S. affiliates, but a blanket exit would cede market share to Chinese competitors and weaken U.S. strategic position.
- Policy should focus on narrow, well‑defined restrictions (e.g., forced‑labor, advanced‑technology transfers) while incentivizing off‑shoring of non‑market‑serving production and improving transparency and talent retention.
Introduction
The debate over whether U.S. companies should disengage from China has intensified, with voices ranging from Senator Rick Scott’s call to “decouple” to the Biden administration’s concerns about an “uninvestible” market. Yet the discussion often overlooks the strategic advantages that a continued U.S. presence in China offers to American national interests, particularly when firms serve the local Chinese market rather than using China merely as a low‑cost export platform.
Mapping the Activities of U.S. Companies in China
According to the Bureau of Economic Analysis, 1,950 U.S. affiliates operated in mainland China and 921 in Hong Kong in 2023, together generating over $640 billion in sales—a figure that peaked at $668 billion in 2021 before modestly declining. Manufacturing accounted for 55 % of these sales, the highest share in a decade. Publicly listed firms disclosed over $307 billion of China‑derived revenue in 2024, with Apple alone contributing about 22 % and the top ten firms representing 61 % of the total. Only about 10 % of U.S. affiliates’ output was destined for the U.S. market, while 21 % served third‑country markets; the remainder—roughly 70 %—was sold directly to Chinese consumers and businesses.
Why It Matters: The Benefits of Having U.S. Companies in China
First, producing in China for the Chinese market allows U.S. firms to capture revenue and market share that would otherwise flow to Chinese competitors, strengthening America’s position in a zero‑sum techno‑economic competition. Second, there is a measurable correlation between sales in China and higher R&D intensity; firms that derive a larger share of their turnover from China tend to invest more in research and development, often channeling those funds back to U.S. labs. Third, outward foreign direct investment acts as a “listening post,” enabling reverse technology spill‑overs: knowledge gained in China can be transferred to headquarters, boosting domestic innovation. Fourth, the diffusion of U.S. technologies—such as operating systems, GPU ecosystems, and aircraft engines—creates lock‑in effects that raise switching costs for Chinese firms, preserving American advantage. Finally, affiliates provide direct access to China’s deep pool of STEM talent, functioning as an off‑ramp for top engineers and scientists to contribute to U.S. R&D while mitigating China’s brain‑drain concerns.
Capital Expenditure, R&D Investment, and Employment Trends
Over the past decade, annual capital expenditures by U.S. affiliates in China have fluctuated between $11 billion and $14 billion, with a slight uptick in 2023 relative to 2017 despite trade tensions. R&D investments have more than doubled, rising from just over $3 billion in 2014 to nearly $7 billion in 2023, with non‑manufacturing sectors showing the strongest growth. Employment, however, has trended downward, falling from a peak in 2016 to about 1.2 million workers in 2023—a 25 % drop between 2018 and 2019 coincided with escalating tariffs and pressure to diversify supply chains. Notably, over 80 % of the decline came from “other industries,” while manufacturing employment remained relatively stable. AmCham China surveys reveal that 84 % of member firms have top‑management teams that are at least three‑quarters Chinese nationals, rising to 93 % for tech‑ and R&D‑intensive members, underscoring the localization of leadership.
Profitability and the Growing Reluctance to Stay
Recent surveys indicate mounting challenges: the U.S.-China Business Council found 18 % of members’ China operations unprofitable in 2025, up from earlier years, and AmCham China reported that 24 % of affiliates had considered or begun reshoring in 2022—a 71 % increase year‑over‑year. Between 2022 and 2025, an average of more than one‑quarter of U.S. firms in China weighed relocation. These trends reflect the combined impact of tariffs, COVID‑19‑related disruptions, and heightened geopolitical scrutiny, yet they also signal that many firms remain willing to stay if the strategic benefits outweigh the costs.
Criticism Against U.S. Companies Operating in China
Critics argue that U.S. investment fuels China’s manufacturing capacity and trains engineers who later compete against American firms, and they warn against involvement in supply chains tainted by forced labor. High‑profile cases such as Google’s abandoned Project Dragonfly illustrate the reputational and ethical risks of complying with PRC censorship. Nevertheless, the report stresses that legitimate concerns—particularly forced‑labor linkages—should be addressed through targeted sanctions and the Uyghur Forced Labor Prevention Act Entity List, rather than a sweeping withdrawal that would cede market share to Chinese actors.
Policy Recommendations
To harness the benefits while mitigating risks, the report proposes several narrow interventions:
- Use Section 301 of the Trade Act to enforce “immediate reciprocity,” barring Chinese firms from U.S. markets in sectors where U.S. companies lack access to China.
- Require the SEC to mandate standardized disclosure of China‑specific revenue and employment figures in Form 10‑K filings.
- Create an expedited green‑card pathway for Chinese graduates in STEM fields to retain talent already contributing to U.S. research labs.
- Avoid broad pressure on firms producing for the Chinese market; instead, incentivize off‑shoring of production that does not serve local demand.
These steps aim to curb asymmetric competition, improve transparency, and protect national security without sacrificing the strategic upside of a continued U.S. presence.
Conclusion
The evidence shows that U.S. companies operating in China to serve the local market generate substantial revenue, stimulate R&D, facilitate reverse technology spill‑overs, secure technological lock‑ins, and provide access to elite Chinese talent. While legitimate concerns about forced labor and unfair practices must be addressed through precise tools, a blanket push for decoupling would surrender market share to Chinese rivals and diminish America’s ability to compete in the advanced industries that underpin national power. Policy should therefore focus on safeguarding critical technologies and labor standards while preserving the economic and innovative advantages that a measured U.S. engagement in China affords.