Trump’s economic nationalism is repelling foreign investment

While China inches forward in attracting more foreign investment and further opening market access – an end towards which the country has already made colossal strides – the US is threatening to take big steps in the opposite direction.

And, while some in the Trump administration, including the president himself, appear to see protectionism as a way to revitalize the economy, it is achieving precisely the opposite effect.

Foreign direct investment in US businesses fell dramatically in 2017 (by 40% over the previous year), and has continued to decline in 2018, according to a new report from the Organization of International Investment.

Adam Posen explains in Foreign Affairs on Monday why Trump is “repelling” foreign investment.

“This year, net inward investment into the United States by multinational corporations—both foreign and American—has fallen almost to zero, an early indicator of the damage being done by the Trump administration’s trade conflicts and its arbitrary bullying of companies and governments. […]

“This decline was not driven by changes in Chinese investment, which flows both ways and so contributes little to changes in the net figure. (In the first quarter of 2016, the United States saw a small net inflow of $4.5 billion from China, and in the same period in 2018, it saw a small net outflow to China of $300 million.) The falloff is a result of a general decline in the United States’ attractiveness as a place to make long-term business commitments. The overall trend in FDI shows the same picture. A four-quarter moving average of net FDI inflows to the United States shows that this year, it has fallen back to its postcrisis lows of 2012. […]

“Major powers have accelerated trade deals among one another without the United States, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the successor to the Trans-Pacific Partnership, from which Trump withdrew the United States last year, and the recently signed EU-Japanese free trade deal, but a new U.S. administration could easily reverse that trend by jumping back into trade negotiations, as those decisions are under direct government control. […]

“The decline is all the more worrying since many factors should have been pushing direct investment in the United States up this year. The massive fiscal stimulus passed by Congress should have increased FDI in three ways: by boosting spending, which increases U.S. growth prospects; by making the tax code more favorable to production in the United States; and by cutting the corporate tax rate.”

Meanwhile, the rest of the world charges on with efforts to deepen trade ties. Trading partners across the globe are willing to leave America to its own devices rather than kowtow to unclear demands, not because they want to, but because Washington is giving them no choice.