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.
AVOIDING AMERICA
A few months ago, I wrote in Foreign Affairs that the Trump administration’s policies could lead to the emergence of a post-American world economy. Today, events are moving in that direction. Most obvious, Trump’s trade war is escalating. It is displacing Americans from jobs in export industries and reducing U.S. purchasing power. But these direct harms are limited; the global economy can adapt to Trump’s tariffs. As I wrote, “The United States is more dispensable to the rules-based trading regime than it is in other economic spheres. . . .Trade can be limited, but never completely squelched.” What’s more, congressional Republicans’ spending binge and their deep tax cuts will offset most of the damage to aggregate U.S. growth and employment, at least for this year and next (although those actions will bring bills to pay later). As a result, standard economic indicators, such as the value of the dollar, the U.S. stock market, and interest rates on U.S. government debt, which are all currently fairly stable, do not reveal much about whether the world economy is moving into a post-American era. 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.
Yet the post-American economic world, one where all investment is more uncertain and politicized—because the U.S. government acts toward businesses as any self-enriching autocracy would—is on its way. That is apparent in business decisions about large, long-term investments, such as the building of major production facilities; foreign takeovers of, and mergers with, U.S. companies; and investment in research facilities and workers. These are reliable indicators of how markets really see Trump’s policies affecting the future. Unlike speculative flows of capital or indicators of sentiment, these kinds of corporate investment decisions must be taken with ten-, 20-, or 30-year time horizons in mind, and once undertaken, they are difficult to reverse. As a result, if the relative attractiveness of investing in the United States compared with other countries—in terms of freedom from government interference, of dependable access to global markets for both inputs and sales, and of brands and hiring being helped, not hurt, by association with the United States—declines, so should direct investment in the United States.
The numbers are clear. To compare like for like, look at flows of foreign direct investment (FDI) into the United States in the first quarter of 2018, the latest for which data are available from the U.S. Bureau of Economic Analysis, and in the same quarter of 2017 and 2016. In the first quarter of 2016, the total net inflow was $146.5 billion. For the same quarter in 2017, it was $89.7 billion. In 2018, it was down to $51.3 billion. 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.
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