Invest in the US or pay tariffs, says Trump in Davos address

WASHINGTON/DAVOS – The competition for foreign direct investment (FDI) around the world just got tougher.

After taking the reins of a country that is already the world’s largest recipient of FDI, US President Donald Trump said he aims to bring home even more money.

Speaking to the world’s top policymakers and business chiefs via a video call from the White House,

Mr Trump offered lower taxes if they brought manufacturing to the US,

and threatened to impose tariffs if they did not.

“My message to every business in the world is very simple,” he said in his address to the World Economic Forum’s (WEF) annual gathering in Davos, Switzerland, on Jan 23.

“Come make your product in America, and we will give you among the lowest taxes of any nation on earth.

“But if you don’t make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff – differing amounts, but a tariff – which will direct hundreds of billions of dollars and even trillions of dollars into our Treasury to strengthen our economy and pay down debt.”

In 2023, the cumulative FDI in the US reached US$5.39 trillion (S$7.3 trillion), according to the US Bureau of Economic Analysis in its latest report of July 2024. The US national debt stands at around US$36 trillion. 

About US$227 billion flowed into the country in 2023 through a mix of acquisitions, expansions and greenfield projects. The top investing countries were Japan, Canada and Germany. Singapore figures among the top 10 investors.

Most of the investment goes into manufacturing (41 per cent), with a sizeable amount in finance and insurance (11 per cent).

Mr Trump’s tariff policy is yet to be fleshed out, but his initial proposals include levies of 25 per cent on Canada and Mexico, starting from Feb 1. He has also floated imposing an additional tariff of 10 per cent on Chinese imports. 

During his election campaign, Mr Trump had threatened to hit China with tariffs of 60 per cent and across-the-board tariffs of up to 20 per cent on all goods entering the US.

In fiscal year 2022, the US collected US$104.6 billion in tariffs, making up just 2 per cent of the US$4.9 trillion of federal revenue. But the sum was a dramatic increase from before Mr Trump imposed tariffs on China in 2018. Tariff revenue stood at US$34.8 billion in 2017.

It is clear that Mr Trump lays store by big-ticket investments. One of his biggest announcements this week was a joint venture with OpenAI, Oracle and Softbank to invest billions of dollars in artificial intelligence infrastructure in the US.

They committed to invest an initial US$100 billion and up to US$500 billion over the next four years in the project dubbed Stargate.

During his Davos speech, Mr Trump also referenced his conversation with Saudi Arabian Crown Prince Mohammed bin Salman a day earlier, his first conversation with a foreign leader since his inauguration. 

Saudi Arabia has reportedly promised to invest at least US$600 billion in the US. The pledge came a day after Mr Trump told a reporter that his first official trip abroad could be to Saudi Arabia – as it was in his first term – if it made substantial investments in the US. 

Before the Davos audience, Mr Trump grew more expansive.

“But I’ll be asking the Crown Prince, who’s a fantastic guy, to round it out to around US$1 trillion. I think they’ll do that because we’ve been very good to them,” he said, drawing some laughter.

Mr Trump also used his speech to press the Organisation of the Petroleum Exporting Countries to bring down the cost of oil.  

“If the price came down, the Russia-Ukraine war would end immediately. Right now, the price is high enough that that war will continue,” he said.

He did not elaborate, but the logic appeared to draw from the fact that Russia finances the war through sales of crude oil to China, India, Turkey and other nations. The EU now buys a much smaller amount after sanctions.

The price of Brent crude fell by 1 per cent following Mr Trump’s comments, to just over US$78 a barrel. 

“With oil prices going down, I’ll demand that interest rates drop immediately. And, likewise, they should be dropping all over the world,” he said.

Most US analysts expect lower interest rates – although not much lower – by the end of 2025.

Mr Trump also put the Nato military alliance on notice, asking that they further increase spending on defence, a sore point with him.

“I’m also going to ask all Nato nations to increase defence spending to 5 per cent of GDP (gross domestic product), which is what it should have been years ago; it was only at 2 per cent, and most nations didn’t pay until I came along,” he added.

On China, he repeated his assertion that their relationship was “unfair”. In 2024, imports from China exceeded US exports to the country by US$270 billion, which Mr Trump considers a major disadvantage.

“We have to make it just fair. We don’t have to make it phenomenal,” he said.

He also elaborated on one of his top foreign policy priorities, telling the audience in Europe that he wanted to meet Russian President Vladimir Putin soon to discuss a peace agreement to end the war in Ukraine.

In a Truth Social post on Jan 22, he unceremoniously threatened to impose tariffs and more sanctions against Russia if it does not come to the table, although there is now little US-Russia trade. The Biden administration imposed heavy sanctions after Russia

invaded Ukraine on Feb 24, 2022.

Mr Putin’s spokesman Dmitry Peskov responded, saying that the Russian President was ready for “an equal and mutually respectful dialogue”, although he did not see any new elements in what Mr Trump was proposing.

Mr Trump’s insistence on talks goes against prevailing thinking in Europe that there would be more to gain from arming Ukraine and making gains on the battlefield.

The US President, however, has enormous faith in his own ability to make deals.

Professor of government at Harvard University, Dr Graham Allison, speaking to The Straits Times from Davos, where he was attending the WEF, agreed.

Asked if Mr Trump was giving away leverage by asking Mr Putin to meet him soon, he said: “Trump doesn’t think that by meeting people, he is giving away anything. He feels that he can get more out of it than you can or I can.”

After being sworn in on Jan 20, the new American President has extended his timeline for securing a deal to stop the war in Ukraine on “day one” of his tenure to six months.

Mr Trump also suggested that China should use its influence with Russia to help end the war. “They have a great deal of power over that situation, and we’ll work with them,” he said.

China is Russia’s largest trading partner and the top buyer of its crude exports. Chinese exports have become crucial for the Russian economy after international sanctions. The two nations share a common goal of challenging the US-led world order.