In their 12th annual Tax Policy Forecast Survey, Washington, DC based law firm Miller & Chevalier and the US National Foreign Trade Council reported that corporate executives are largely optimistic about the impact of 2017’s Tax and Job Cuts Act (TJCA) on inward FDI, and they tend to agree that the reform will decrease foreign capital investment.

The survey was completed by 93 corporate executives from around the world in the manufacturing, oil and gas, retail, insurance, utilities, financial institutions, automotive, healthcare, defence, hospitality and agriculture industries.

Most notably, 93% of respondents agreed that the TJCA would increase the attractiveness of the US as an FDI destination. Similarly, nearly 97% of respondents believe that the TJCA would increase the global competitiveness of US businesses.

This confidence among respondents is predominantly based upon the TJCA’s reduction of corporate tax rate from 31% to 21%, according to the survey. In particular, 59% of respondents expect that the TJCA will reduce their current tax rates, while 39% believe that the new legislation will have no effect, or even raise their current tax rates.

“For years, respondents told us that one of the main goals of tax reform would be to address the high statutory US tax rate, and last year’s legislation did that,” said Marc Gerson of Miller & Chevalier.

The report also found that a majority of respondents (58%) believe “the TJCA will decrease foreign capital investment, reflecting a view that organizations will favor investment in the US over other countries”. Over 90 percent of all respondents see the new tax law as increasing the attractiveness of the U.S. for foreign direct investment.

Despite this optimism, respondents are less certain whether the TJCA will improve or harm the attractiveness of foreign investment for US businesses. According to the report, “a substantial number of respondents (45%) believe the TJCA, which included international tax changes scored to raise revenue, will make foreign investment less attractive for US businesses”.

As a result of the TJCA’s provisions, including the introduction of a low corporate tax rate, the report concludes that US businesses might prefer to invest in the US, instead of investing abroad in foreign markets.

For years, the US has been the main source of global FDI, but as part of president Donald Trump’s America First vision, the US has sought to bring home outward US investments. Mr Trump has tried to deter US companies from investing abroad while offering incentives to foreign companies to set up their operations in the US.

So far, Mr Trump has sought to accomplish this goal through tax reform, deregulation, fiery pro-business rehetoric and publicly threatening companies for their “un-American” business practices. Mr Trump’s fondness for tariffs, especially those against China and other economic rivals of the US, has set a potentially dangerous precedent that will certainly test the limitations of his vision.

In many ways, the TJCA, reflects the backbone of Mr Trump’s economic nationalism: competitive tax rates aimed at fuelling US growth. However, FDI figures have yet to reflect a positive impact from the TJCA. Greenfield FDI into the US halved in the first quarter of 2018 on a year-on-year basis, according to fDi Markets. Between January and March 2018, the US attracted 327 FDI projects with a capex of $7.7bn, whereas it attracted 474 FDI projects worth $14.6bn during the same period in 2017.

Meanwhile, outward US FDI in 2018 is down compared with the same moment last year. While the US recorded 978 outbound FDI projects between January and April 2017, there have only been 910 projects recorded through the first four months of 2018. US companies were responsible for 169 outward FDI projects in April 2018. Although there are a variety of explanations for this sudden drop, retaliatory trade measures imposed by China for Mr Trump’s aluminum and steel tariffs is one of the more convincing.

On the other hand, companies already active in the US are factoring in the benefits of TJCA.

A recent Financial Times analysis of the TJCA’s impact on the largest US listed companies revealed that “61 of the top 100 quoted companies have reported an initial net income tax expense, amounting to a combined $168bn”.

“Citigroup, one of the largest US companies, saw its Q1 2018 tax rate drop from 31% to 24%, greatly increasing its first quarter earnings,” said to the FT report, which was published in the wake of US tax filings on 22 April.

While many corporate executives are optimistic about the TJCA, others have sought further regulatory clarity. The Tax Policy Forecast Survey states that nearly 73% of respondents “plan to seek regulatory or other administrative guidance” with regard to the TJCA. As a result of the bold policy implications set forth in the TJCA, a majority of corporate executives are erring on the side of caution, as they sift through one of the most comprehensive tax reform bills in modern US history.