Wary foreign investors skip US as trade tensions rise

Trump's protectionist policies spark rethink by investors, especially in China and Europe

WASHINGTON • President Donald Trump's trade sabre-rattling and protectionist economic policies are discouraging the flow of overseas money into job-creating US investments as foreigners grow worried about what an unpredictable government might do next.

The US reputation for stability had long underpinned its status as the most popular place for investors to put their money. But Mr Trump's use of laws aimed at national security risks to limit imports and foreign investments is fuelling a re-appraisal, especially in Western Europe and China.

The administration turned to the previously rarely deployed Section 232 national security provision of the 1962 Trade Expansion Act to impose tariffs on steel and aluminium imports, and now uses it to threaten crippling duties on car imports. Mr Trump is also turning to the Committee on Foreign Investment in the US, or Cfius, as a way to limit foreign investment in sensitive technologies.

Foreign direct investment in US businesses, factories and subsidiaries plunged last year and is falling again this year. Part of the drop can be attributed to the fall in global FDI, shrinking 23 per cent worldwide, the Organisation for International Investment (OII) said. After two record years in 2015 and 2016, FDI in the US last year was more along historical norms, said Ms Nancy McLernon, head of the OII, a Washington trade group.

New Chinese deals in North America in the first half of this year fell to a nine-year low of US$2.5 billion (S$3.4 billion), compared with US$24 billion (S$33 billion) in the same period during 2017, according to a report released this week by law firm Baker McKenzie.

Overall foreign direct investment declined 32 per cent in 2017, US government data shows.

  • $3.4b

    Value of new Chinese deals in North America in the first half of this year, down from $33 billion in the same period last year. 

    32%

    Decline in overall foreign direct investment in US last year.

"This newly enunciated concern for incorporating economic security concerns into the Cfius review process is a game-changer," said Mr Jeremy Zucker, a partner at Dechert in Washington.

He said even countries in Western Europe, which as American allies viewed the US as safe ground, are worried about the prospect that their deals might be rejected. "In the short term, investors may look to invest in other economies where the political outlook is more easily predicted," Mr Zucker said.

The US' large market and well-educated workforce are a long-term advantage. But investors are increasingly looking elsewhere while Mr Trump's policies remain in flux. China announced US$22 billion in new deals in Europe in the first six months - favouring Sweden, Germany, Britain and France over the US, Baker McKenzie found.

Uncertainty from the administration's negotiation strategies around trade agreements and tariffs are causing people to think about their investment decisions, said Mr Rod Hunter, a partner at Baker McKenzie and former senior director of international economics at the National Security Council under President George W. Bush.

"Their hope would be that more production activities take place at home," Mr Hunter said. "I just don't know that they're going to get the outcome that they want."

Part of the concern stems from Mr Trump's use of Cfius, an inter-agency government panel that reviews foreign deals for national security risks, as a way to curb investment. The administration has backed bipartisan legislation to strengthen Cfius that is making its way through Congress.

Mr Trump is also using 232 investigations, sometimes called the "nuclear option" in trade laws, to counter cheap imports.

WASHINGTON POST

A version of this article appeared in the print edition of The Straits Times on July 21, 2018, with the headline 'Wary foreign investors skip US as trade tensions rise'. Print Edition | Subscribe