There are several reasons why FDI is falling, but not surprisingly, antitrade rhetoric, more protectionist attitudes and investment-reducing policies is causing investors and companies to think twice about buying assets in foreign nations. It’s not as compelling to pour money into a country with an “America first, everyone else second” policy, for instance.
“America first is an inherently inward-looking, not pro-globalization policy,” said Zandi. “Pulling back on TPP may be a pullback on trade, but FDI is also being affected by this sentiment.”
Talk of a trade war is also making it more difficult for companies to plan — and this is especially true for Chinese companies. Trump has already implemented tariffs on $100 billion worth of goods, but he’s threatened to slap duties on $800 billion of imports.
If the China-U.S. relationship worsens — and China has imposed its own tariffs on U.S. imports — then that could cause more companies to stay home.
“Foreign investors are looking for both economic opportunities and political stability, and certainty the latter has suffered quite tremendously under this administration,” said Thilo Hanemann, a director at Rhodium Group and the author of its China FDI report, “Uncertainty is turning off foreign investors.”
Stricter immigration policies could cause FDI to fall further in the future, too, said Zandi. Typically, FDI increases when migration to a country rises. Why? Because immigrants talk up where they live to people back home who then want to buy homes or businesses in the area.
“Immigrants come to get to know a place, and then they say we should invest here, so money starts pouring in,” said Zandi. “People in the community can help manage or operate (a building) and they know what to buy.”