By Josh Zumbrun | Photographs by Andrea Morales for The Wall Street Journal 

WASHINGTON -- The accord now being drawn up to resolve the trade fight between the world's two largest economies promises better treatment of U.S. companies in China and more Chinese orders for American crops and other products.

But rattled businesses on both sides of the Pacific are skittish about rushing back in to revive the once-booming investment activity between the two countries.

"There is no way any deal between China and the U.S. will cause everyone on both sides to say, 'We were just kidding,'" said Dan Harris, managing partner at Harris Bricken, a law firm that specializes in investment with China. "The tariffs and the arrests and the threats and the heightened risk have impacted companies and that will not go away."

The trade dispute isn't the only factor driving a decline in investment flows between China and the U.S., which plunged to just over $19 billion last year, down from a 2016 peak of $60 billion.

Beijing clamped down on capital outflows, as authorities questioned expenditures such as Dalian Wanda Co.'s $3.5 billion purchase of Hollywood's Legendary Entertainment in 2016 as overpriced and ill-considered. And U.S. officials had national-security concerns. The U.S. Committee on Foreign Investment has moved to block or unwind Chinese investment in companies that could give it a strategic advantage, including social media companies.

But the rounds of tariffs, investment restrictions and sharp rhetoric have been the main factor behind the slump, investment specialists say, as some Chinese and American companies rethink their businesses through the prism of prolonged U.S.-China trade tensions.

The camera maker GoPro has decided to move its camera production for the U.S. market from China to Guadalajara, Mexico. The company was contemplating such a move anyway, but the tariffs served as the "catalyst to improve supply chain efficiency," said GoPro spokesman Christopher Clark.

Another U.S. company, bicycle maker Kent International Inc., based in New Jersey, said it was investing in Cambodian factories to avoid the Chinese tariffs.

China's Guangzhou Automotive Group, citing trade tensions, said it delayed plans to export its Trumpchi line of cars to the U.S. (the nameplate's similarity to President Trump is coincidental).

The company didn't put a value on the scotched investment, but it had already invested in research and development operations in California, and had begun taking steps to recruit dealers and set up a U.S. sales company.

In Forrest City Ark., meanwhile, the trade chill can be seen in an abandoned, 1.4 million square-foot abandoned Sanyo TV factory. In 2017, China's Shandong Ruyi Technology Group said it planned to buy the ghost factory and turn it into a cotton-yarn mill that would employ more than 800 people in a town of about 14,000.

The project is now on hold, according to officials with the Arkansas Economic Development Commission, who blame the trade fight for cooling Shandong Ruyi's interest.

"This is the heart of the Mississippi Delta, an area that could really utilize the jobs," said Mike Preston, the executive director of the commission. "But the timeline has been a moving target. It's been delayed significantly... they can get cotton from other countries and I think that's what they've been doing."

Shandong Ruyi officials didn't respond to requests for comment.

The yarn mill is just one of the trade dispute's casualties in Arkansas. A $1 billion paper mill project in Arkadelphia by another Chinese company from Shandong province, Sun Paper Industry Group, also has been postponed because of tariff worries, Mr. Preston said.

"We were very heavy into negotiations and then communication completely dried up," said Mr. Preston, who added that he was optimistic that a trade deal would get the project get back on track this year. Sun Paper didn't return calls for comment.

The U.S. and China are now aiming to conclude a trade deal in late May or early June, and that could bode well for an improved business climate, said Craig Allen, president of the U.S. China Business Council, which represents American companies doing business in China. "We are hopeful that the bilateral trade negotiations will lead to an environment in which investment flows going both way across the Pacific will be more stable and predictable," Mr. Allen said.

Even with a truce in sight, the business community has remained uncertain. A late-February survey from the American Chamber of Commerce in Shanghai found that 65% of members said the tensions were influencing their longer-term strategy, with nearly a quarter delaying additional Chinese investments.

That is true for Synplus Inc., a Pomona, Calif-based supplier of leather, fur and suede that sources its materials from Chengdu, in China's Sichuan province. The company had invested in an office and built partnerships with several pig-leather tanneries.

The company was hit by the 10% tariffs -- imposed in September on about $200 billion of Chinese goods, including leather goods -- and had to scale back its investment by laying off 15% of its staff, said Cynthia Gardenhire, the firm's vice president.

To avoid tariffs, some Synplus customers have switched from western China pig leather to Pakistani lamb leather. Companies are "forced to create a new manufacturing channel" and "if it's successful, they won't choose to come back," said Ms. Gardenhire.

Synplus has begun considering investing in a Vietnamese supply chain to remain competitive and avoid future tariffs.

Rick Helfenbein, president of the American Apparel and Footwear Association, said the decision faced by companies like Synplus is emblematic of trade frictions that have "altered supply chains that won't recover for, I would say, a minimum of 10 years."

When apparel companies talk to analysts and investors they are grilled on their exposure to Chinese uncertainties, Mr. Helfenbein said, and "the wrong answer is `90% of everything I do is China,' and a good answer is, 'We're working hard to reduce our exposure to China.'"

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

(END) Dow Jones Newswires

April 21, 2019 18:06 ET (22:06 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.