The US witnessed its largest ever inflow of greenfield foreign investment in 2017, but whether this result can be linked to President Trump’s policies is debatable. Sebastian Shehadi reports. 

Until now, the largest amount of annual inbound US FDI was 2009’s $71bn, according to fDi Markets. Eight years later, this record has been broken with a figure of $87.6bn, not least because 2017 witnessed several super-size foreign investments, such as Foxconn’s $10bn project in Wisconsin.

Another explanation is President Donald Trump’s corporate-friendly posture, illustrated by the 2017 Tax Cuts and Jobs Act. Indeed, corporate executives believe that recent US tax reform will benefit US inward FDI while penalising outward investment, according to a forecast released by the National Foreign Trade Council and law firm Miller & Chevalier.

However, Linda Lim, professor emerita of international business at University of Michigan’s Ross School of Business, says that FDI figures are notoriously volatile and a one-year spike is not a trend. Indeed, it is worth mentioning that, in terms of FDI project numbers, 2017 was an unremarkable year for US inflows, matching the average since 2011, according to fDi Markets.

Ms Lim explains that FDI consists of long-term projects, the planning and decision-making for which normally occur well before the year in which the investment actually takes place. However, one potential cause of the FDI spike in 2017 is the strong demand growth in the US, she says.

“Everything else being equal, there are strong reasons for companies to produce where they sell, especially in large final markets,” she says. “Additionally, for some time now, technological advances combined with low interest rates has made it attractive to invest in automated facilities in the US. Lastly, the weakening dollar has made the US a more cost-competitive location for investment and more expensive for US companies to invest abroad.”

In terms of FDI outflows from the US in 2017, Ms Lim believes that President Trump’s policies may have caused some companies to withhold making investments abroad in 2017 due to uncertainty about his tax reform and trade policies.

Indeed, the UN Conference on Trade and Development World Investment Report 2018 contends that, in the coming year, FDI outflows from the US are expected to reduce due to the repatriation of accumulated profits by US multinationals as a result of the tax reform, with similar effects elsewhere.

The report, which monitors all forms of foreign investment including mergers and acquisitions, found large reductions in FDI flows to the US in 2017, mainly due to the authorities’ clampdown on tax inversions.

This article is sourced from fDi Magazine
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