The US-China dispute has multifaceted effects on international business, necessitating scholarly exploration through the lens of geopolitical tension. We introduce the concept of “inter-US-China-ally diversification” to characterize the extent of international activities of multinational enterprises (MNE) spread across US-ally and China-ally countries. Leveraging insights from corporate diplomacy and real options theory, this study investigates the impact of inter-US-China-ally diversification on the performance of Chinese MNEs. Our findings reveal a positive relationship between inter-US-China-ally diversification and Chinese MNEs’ performance amid escalating tensions between the US and China. Additionally, we discover that the foreign experience of the top management team negatively moderates this positive relationship, highlighting the nuanced dynamics in the context of a divided global economy. These findings carry significant implications for both theoretical understanding and practical applications in a bifurcated world.
