26 September 2018   Leave a comment

The Organization for International Investment has issued its report for the second quarter of 2018 and the results are troubling.  According to the report:

” Second-quarter 2018 foreign direct investment flows in the United States were in negative territory, resulting in a divestment of $8.2 billion, following a relatively strong first quarter. The second quarter was marked by unusually high selloff and purchase activity, which suggests that some $100 billion invested in the United States has transferred ownership abroad. In that quarter, U.S. affiliates paid off $32 billion in loans to related parties. Clearly, much of this unprecedented FDIUS activity is due to changes in ownership. Yet, it can partially be viewed as a response to import tariffs and other trade actions from the Trump Administration as international companies hit the pause button on potential investments.”

The results are a sharp divergence from the recent past.  Again, according to the report:

” Foreign direct investment in the United States in 2017 was the fourth-strongest for the past decade, but was down 40 percent from 2016. This followed record-breaking years in 2015 and 2016; FDIUS for each year reached nearly half a trillion dollars. These investments benefit the American economy as international firms build new factories across the United States, buoy their well established U.S. operations, fund American research and development activities, and employ more than 6.8 million Americans in well-paying jobs.

The change is troubling because historically the US has been viewed as a safe and profitable place to invest.  It is a mistake to take a single quarter as indicative of a trend, but the lack of confidence in the US, particularly after the tax changes earlier this year which were designed specifically to stimulate investment, is symbolic of the jitters the world is experiencing with a US that is inconsistent with its historical norms.  Adam Posen wrote in the journal Foreign Affairs:

“U.S. President Donald Trump’s hostility to globalization is ruining the United States’ attractiveness as a place to do business. Sometimes, after all, it takes just one bad landlord to destroy a whole neighborhood’s desirability. 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 shift of corporate investment away from the United States will decrease long-term U.S. income growth, reduce the number of well-paid jobs available, and reinforce the ongoing shift of global commerce away from United States. That shift will subject the entire world economy to greater instability….

 …..the United States will discover, just as developing countries already have—and as the United Kingdom is now realizing, as auto manufacturers announce plans to withdraw production from the country if Brexit goes through—that when a country loses access to global markets, global automakers stop investing in its economy. If U.S.-made cars are competitive only behind tariff barriers, and cost far more than they should because of those tariffs, there is no point in planning to make more of them in the United States to meet rising global demand.    

The flow of Chinese investment is quite dramatic.  Jeff Spross has written in the journal The Week:

“Just a few years ago, Chinese investors and U.S. markets were really hitting it off. Direct Chinese investment into the United States rose to a whopping $46 billion in 2016.

Then the romance ended just as quickly. From 2016 to 2017, the flood of money shrunk by around 50 percent. And while 2018 isn’t over yet, the breakup has continued: From the first half of 2017 to the first half of this year, Chinese investment fell over 90 percent. It now sits around $2 billion. David Firestein, the founder of the China Public Policy Center at the University of Texas, called the drop “probably unprecedented” in an interview with The Week.

In fact, if you include divestitures, so far this year, more Chinese money has actually flowed out of America than in — by about $7.8 billion.

Foreign Direct Investment 2006-2017

US President Trump’s second speech to the United Nations General Assembly offered an opportunity for the world to hear more of his views about the US role in world affairs.  There was no grand scheme presented of a vision forward; rather it was a robust defense of US sovereignty and his view that international commitments are dangerous to US interests.  He accused China of interfering in the upcoming 2018 elections but made no reference to Russian actions in either 2016 or 2018.  He gave extended critiques of Iranian behavior in the world, but did not outline the possibility of working out a deal to replace the nuclear deal of 2015.  He also praised North Korean leader Kim as a “man of courage”–the same person he lambasted as “little Rocket Man” in last year’s speech.  Robin Wright offered this summary of the speech in the New Yorker:

” Last year, Trump’s U.N. speech was greeted with a combination of curiosity, intrigue, and diplomatic patience to hear him out, despite trepidation over his campaign rhetoric. This year, there were signs of a growing disconnect between the leader of the world’s most powerful country and many of his peers on the international stage.

President Trump was followed by French President Macron, who delivered a not very subtle rebuke to the America First message of Trump. 

Posted September 26, 2018 by vferraro1971 in World Politics

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