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Yahoo
a day ago
- Business
- Yahoo
Announce now, invest later: why investment pledges into the US aren't matching reality
Martin G Kaspar is vice-president of corporate strategy and development at a German Mittelstand company. We have all seen the headlines of corporate announcements of vast foreign direct investment (FDI) projects into the US. Add to this the $500bn (Y73.75trn) of projected FDI inflows from Japan and the €600bn from the EU following President Donald Trump's tariff 'negotiations'. At the same time, real FDI inflows into the US have visibly slowed since the start of Trump's second term. According to US Bureau of Economic Analysis data, FDI dropped to $52.8bn in Q1 2025 (down from $79.9bn in Q4 2024), making it the weakest quarterly performance since 2022. So, why the disconnect between project announcements and real capital flows? What does this tell us about the attractiveness of the US as an investment destination? And what about our grasp of what is actually going on in the world of FDI? There are a number of explanations as to why FDI projects into the US are being announced publicly with great fanfare, and are not (yet) materialising in reality. Projects could be delayed, scaled down, or quietly abandoned altogether, as foreign companies watch Washington's unpredictable trade and investment policy – alternating between tariffs, retaliatory measures and sudden exemptions. The latter point seemingly led to the double-strategy of grandiose announcements, while real project deployment is being stalled. Presumably to wait for more regulatory clarity and stability. A variant of this strategy is to 'repackage' projects (earlier investment plans being rebranded as new investments to spin stories of reshoring or policy alignment). That being said, it is not just corporate signalling on steroids (in other words, deliberately misleading) that causes these distortions. The mismatch can also have very practical reasons, such as in the case of the Italian tyre manufacturer Pirrelli, which had planned to invest $2bn in the US to expand its production footprint in Georgia. Due to 37% of the company being owned by Sinochem, a Chinese state-owned enterprise, red flags within US authorities went up and the whole project is now 'on hold'. Similarly, Nissan's investment plans to manufacture a number of electric vehicle (EV) models at its plant in Canton, Mississippi, were shelved due to the elimination of EV tax credits by the US administration and the resulting slump in EV demand. Basically, the US remains a highly attractive destination for FDI, with its 330 million consumers. However, the growing gap between project announcements and actual capital inflows reveals deep corporate concerns. Policy and regulatory volatility have made long-term investments more of a gamble than a genuine investment. It highlights that companies increasingly view the US as an unstable location, with it now more a stage for FDI theatre rather than a genuine destination for productive capital. To regain trust, Washington must ensure more consistent trade and industrial policies, streamline approval processes, and prioritise transparent, outcome-based procedures over headline-grabbing pledges. Current FDI metrics further distort our perception of reality, failing to distinguish between pledged, committed and realised investment. This leads us to one of the key topics in the field: FDI data. Balance of payments (BoP)-based data always suffered from the tension between legal ownership and real economic activity by counting any change in cross‑border financial flows or reinvested earnings as FDI, regardless of whether capital actually flows into new productive assets or other purposes. Similarly, 'pass‑through' investments – where multinationals channel funds through low‑tax jurisdictions such as the Netherlands or Luxembourg – are used to optimise their tax position. Such measures can distort flows by up to 30 or 40% of recorded FDI flows. Lastly, 'round‑tripping', whereby domestic investors send money abroad and immediately bring it back as 'foreign' capital to collect FDI incentives, further inflates headline FDI figures. To overcome these BoP weaknesses, analysts increasingly turned to alternative sources. Data aggregators started to track announced greenfield projects, offering project‑level granularity on industry, location and planned jobs that BoP-based figures never could. While these much richer data sets sidestepped the pure financial flow statistics and added layers of useful insights, these providers suffer especially from the current trend of inflated announcement vis-à-vis real flows. Increasingly, these measurement flaws are more than technical quirks and lead to misaligned decisions themselves. Without clearer, tiered metrics that distinguish announced, committed and realised investments, policymakers and markets will continue to mistake press release optics for economic substance. In that, we should be grateful to Donald Trump for shining a light on aspects of FDI that had been tricky all along. "Announce now, invest later: why investment pledges into the US aren't matching reality " was originally created and published by Investment Monitor, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
The Age
5 days ago
- Business
- The Age
Welcome to Donald Trump's dystopian world
Most non-political observers would agree wholeheartedly, but removing the head of an independent and non-partisan agency and replacing them with someone acceptable to Trump would raise suspicions that the data could be manipulated for political purposes. McEntarfer may not be the only head of a data collection agency in the gun. Trump's feud with the Fed's chair, Jerome Powell and his frustration at his inability to sack him and replace him with someone who will lower US interest rates is a long-running saga. When Powell's term as chair expires next May he will be replaced by someone more amenable to Trump's desires, risking the politicisation of the central bank's decisions. Last week's inflation data, also produced by the BLS, showed goods inflation is rising. Is that, too, now discredited? The US Bureau of Economic Analysis produced the data that last week showed the US economy grew at a meagre 1.25 per cent in the first half of this year, down from the 2.3 per cent growth generated in the same half of last year. Is the leadership of that agency now under threat? There's a quote in George Orwell's 1984 that seems appropriate. 'The Party told you to reject the evidence of your eyes and ears. It was their final, most essential command.' Despite what Trump and the propagandists in the administration might claim, Trump's trade and immigration policies and his DOGE-led assault on the federal bureaucracy aren't producing an economic boom. The evidence increasingly says otherwise. His policies are doing exactly what most neutral observers said they would, even if their impacts are only just starting to emerge because of the messy way they have been implemented. The delayed April 2 'Liberation Day' tariffs, or at least some of them, have been introduced in phases, the most impactful of them only last week. They will progressively show up more clearly in the data – if they are allowed to. Even their initial announcement appears to have frozen business hirings and investment, as you'd expect when businesses have no idea what their cost of goods will be as the tariffs flow through to domestic suppliers. Tariffs raise prices and reduce supply and sales – that's what they are designed to do. The BLS data showed job losses were concentrated in the areas most exposed to Trump's trade policies, his job shedding in federal bureaucracies and his immigration policies, offset by additions of roles in the education and healthcare sectors that are less affected by changes in economic conditions. There will be more jobs lost in October, when the tens of thousands of government employees to who took up DOGE's offer of 'voluntary' buyouts enter the statistics. The numbers are likely to get worse as the impact of the policies shows up more clearly. The Yale Budget Lab, which pits the effective average rate of Trump's tariffs, so far, at 18.4 per cent (compared with about 2.5 per cent before Trump regained office). That's the highest rate since 1933 and will, Yale's economists say, push up US prices by 1.8 per cent initially, lower US GDP growth by half a percentage point and increase the unemployment rate by 0.4 percentage points this year and 0.7 percentage points by the end of next year. None of that is surprising. The tariffs are already raising substantial amounts of revenue – revenue from customs duties jumped from about $US78 billion in July last year to $US152 billion last month – and there are estimates that tariff-related revenues will, if the tariffs remain in place, generate more than $US2 trillion over the next decade. That revenue is a new tax on US consumption, paid for by either the US importer, their corporate customers or consumers, most likely a mix of all of them. It's been described as the biggest tax hike in US history, so of course it will have an impact on economic growth and employment. Loading Already, some of America's largest companies – its auto companies and consumer products companies – are saying they are experiencing multibillion-dollar cost increases from the tariffs, and planning billion dollar cost cuts in response. Those cuts will inevitably involve jobs. Manufacturing is supposed to benefit from Trump's tariffs, indeed he has said the tariffs are designed to make the American manufacturing sector great again. The latest purchasing managers' index – also released last week – shows US manufacturing activity contracted in July. Perversely, the gloom just starting to cloud the US economy, an economy that had the strongest growth of any developed economy before Trump took office, might convince the Fed to do what Trump has demanded for months that it should do and lower its policy rate next month. The Fed has a dual mandate. It is charged with maximising employment while maintaining price stability. The jobs data signals that labour market is deteriorating rapidly and is likely to shrink further. The numbers are likely to get worse as the impact of the policies shows up more clearly. The tariffs, however, are pushing up an inflation rate that, even before they were in place, was already materially above the Fed's target of 2 per cent. Its preferred measure, the core personal consumption expenditures index, has been creeping up and, according to data released last week, was running at 2.8 per cent in June. The Fed knows that number will continue to rise, and may or may not be transitory, which will create a dilemma. It may have to decide which element of its mandate it should prioritise. Loading The worst fear of central bankers is stagflation, or low or declining economic growth accompanied by rising inflation. Responding to rising unemployment could exacerbate inflation, and vice versa. That's a realistic possibility in Trump's America, particularly if he is able to politicise the Fed while undermining the quality of the data it, and US businesses, have available to inform their decisions.
Bangkok Post
5 days ago
- Business
- Bangkok Post
Dollar at risk of being left behind
Europe and Asia could leverage US President Donald Trump's "America First" strategy for their own benefit, eventually spurring the development of regional tripolar FX blocs that could erode the dominance of the US dollar and reshape global markets. The dollar has struggled this year, especially since Mr Trump's April 2 tariff announcement. While the currency is on pace for one of its strongest weeks this year after jumping about 1% on July 28 following the announcement of US-EU trade deal, this short-term move doesn't change the long-term trends that could undermine the greenback's position. MOVING IN REVERSE Economic dominance in the future could largely depend on access to affordable, efficient energy to power artificial intelligence technologies. And in the race to dominate the industries of the future, the US is arguably going in reverse. It's retreating from the renewables space, as seen in the administration's recent move to eliminate many clean energy subsidies. The president appears to be making the bet that the US can maintain energy dominance indefinitely by relying on its own fossil fuel resources. This could ultimately result in uncompetitive power costs in the future, especially given that China is already dominating in clean energy technologies like solar and electric vehicles. As historian Adam Tooze argues, "for the first time in two centuries the West is no longer the leader in future technologies but the follower". TWIN DEFICITS While Mr Trump may be seeking to enhance American self-sufficiency, the administration's policies may actually be increasing the country's dependency on foreign capital. Mr Trump's recently passed budget bill -- which looks pretty ugly to fiscal watchdogs despite its name -- could cement the US's position as the world's biggest capital importer by adding an expected $3.4 trillion to the US deficit over the next decade, according to estimates by the nonpartisan Congressional Budget Office, potentially locking in 6% to 7% budget deficits for years. Importantly, the US has also been running current account deficits of roughly 4% over the past several years, and this widened to 6% of GDP in Q1 2025, according to the US Bureau of Economic Analysis. By spending beyond its means and running these twin deficits, the US will continue to require large amounts of foreign capital inflows. But unfortunately for Washington, this capital may soon be harder to come by, if both Europe and Asia seek to keep more of it closer to home. Europe is pushing for increased defense spending, as seen in its new goal to spend 5% of GDP on defence in the coming decade. While the bloc has agreed to increase US energy purchases through the recently announced US trade deal, much of that agreement remains up in the air and the volumes suggested are pretty unrealistic. Meanwhile, Asia has begun to trade more internally, as China has been focusing on export diversification. TRI-POLAR FX BLOCS A growing regionalisation of supply chains began during the pandemic and appears to be accelerating as Mr Trump seeks to drive production back to the US and all major global powers focus on securing regional raw material access (eg, rare earths and other critical minerals) for national security purposes. This shift could eventually create the foundation for true regional FX blocs across Asia, Europe and the Americas. This development would have a major impact on the global economy, currency values and capital markets, arguably providing a more balanced global economy with three poles of supply and demand, each attuned to their own regional dynamics rather than the current set-up whereby the global economy responds primarily to the Federal Reserve and US internal dynamics. Recently, European policymakers have discussed what ECB President Christine Lagarde has termed a "Global Euro" moment, one built upon a European Savings and Investment Union designed to foster both a European safe-haven asset that could eventually compete with US Treasuries and deeper, more liquid European capital markets to fund European infrastructure and innovation. Of course, this won't be an overnight shift. The dollar remains the world's dominant reserve currency, and the US debt market is estimated to be more than three times the size of Europe's, according to the World Economic Forum. But simply having a larger percentage of European capital stay at home could make a huge difference. Europe's current account surplus has averaged roughly $400 billion over the past few years, and Europe invests roughly $300 billion per year in offshore financial assets, according to the New York Times. Within Asia, Pan Gongsheng, Governor of the People's Bank of China, has recently highlighted China's interest in having the yuan play a larger role in a multi-polar currency world. Other officials soon followed, discussing how China plans to improve home market access for foreign capital while expanding opportunities for the Chinese to invest abroad. While China's capital account remains closed, Asian currencies already primarily trade off the yuan rather than the US dollar. Even though China faces challenges, such as its fight against deflation, its efforts on this front -- namely, boosting consumption and reining in excess supply, especially in the renewable energy space across solar, wind and batteries -- could ultimately help attract more foreign capital by boosting China's growth profile and corporate earnings. There is obviously no guarantee that these measures will be successful, but the government's intense focus on achieving these goals is evident. The recent decision to provide $12.4 billion in childcare subsidies suggests a potential policy Rubicon has been crossed, as China has typically resisted these types of direct fiscal stimulus measures in the past. In a world of currency blocs, both Europe and Asia could emerge as potential winners, as they erode the US's position as the world's financial powerhouse. So while many investors may get lost in the short-term currency noise, it might be wise to instead focus on the long-term signal. Reuters
New Straits Times
5 days ago
- Business
- New Straits Times
Trump's 'America First' may fuel global currency shift
EUROPE and Asia could leverage United States President Donald Trump's "America First" strategy for their own benefit, eventually spurring the development of regional tripolar foreign exchange (forex) blocs that could erode the dominance of the US dollar and reshape global markets. The US dollar has struggled this year, especially since Trump's April 2 tariff announcement. While the currency jumped recently following the announcement of US-European Union trade deal, this short-term move doesn't change the long-term trends that could undermine the greenback's position. Economic dominance in the future could largely depend on access to affordable, efficient energy to power artificial intelligence technologies. And in the race to dominate the industries of the future, the US is arguably going in reverse. It's retreating from the renewables space, as seen in the administration's recent move to eliminate many clean energy subsidies. The president appears to be making the bet that the US can maintain energy dominance indefinitely by relying on its own fossil fuel resources. This could ultimately result in uncompetitive power costs in the future, given that China is already dominating in clean energy technologies like solar and electric vehicles. While Trump may be seeking to enhance American self-sufficiency, the administration's policies may actually be increasing the country's dependency on foreign capital. Trump's recently passed budget bill — which looks pretty ugly to fiscal watchdogs despite its name — could cement the US' position as the world's biggest capital importer by adding an expected US$3.4 trillion to the US deficit over the next decade, according to estimates by the nonpartisan Congressional Budget Office, potentially locking in six to seven per cent budget deficits for years. The US has also been running current account deficits of roughly four per cent over the past several years, and this widened to six per cent of gross domestic product in the first quarter, according to the US Bureau of Economic Analysis. By spending beyond its means and running these twin deficits, the US will continue to require large amounts of foreign capital inflows. But this capital may soon be harder to come by, if Europe and Asia seek to keep more of it closer to home. While Europe has agreed to increase US energy purchases through the recently announced US trade deal, much of that agreement remains up in the air. Meanwhile, Asia has begun to trade more internally, as China has been focusing on export diversification. A growing regionalisation of supply chains began during the Covid-19 pandemic and appears to be accelerating as Trump seeks to drive production back to the US and all major global powers focus on securing regional raw material access (e.g., rare earths and other critical minerals) for national security purposes. This shift could eventually create the foundation for true regional forex blocs across Asia, Europe and the Americas. Within Asia, Pan Gongsheng, governor of the People's Bank of China, has recently highlighted China's interest in having the yuan play a larger role in a multi-polar currency world. While China's capital account remains closed, Asian currencies already primarily trade off the yuan rather than the US dollar. Even though China faces challenges, such as its fight against deflation, its efforts on this front — namely, boosting consumption and reining in excess supply, especially in the renewable energy space across solar, wind and batteries — could ultimately help attract more foreign capital by boosting China's growth profile and corporate earnings. In a world of currency blocs, Europe and Asia could emerge as potential winners, as they erode the US' position as the world's financial powerhouse. So while many investors may get lost in the short-term currency noise, it might be wise to instead focus on the long-term signal.
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First Post
28-06-2025
- Business
- First Post
US recession fears rise as personal income and spending fall in May
Amid the tariffs introduced by US President Donald Trump, fears of a recession loom in America as the US witnessed a decline in personal income and consumer spending in May read more Amid the fears of recession and inflation, the US consumer spending declined for the first time since January. According to the new data released by the US Bureau of Economic Analysis, personal income decreased by $109.6 billion (0.4 per cent at a monthly rate) in May. The Commerce Department report also showed that consumer spending fell 0.1 per cent last month after rising 0.2 per cent in April. The 50 per cent drop-off in motor vehicle sales in May was a significant driver of the overall spending retreat. The vehicle industry saw a sharp decline in May because consumers rushed to dealerships to buy cars in March and April, fearing that President Donald Trump's tariffs would send those costs soaring. STORY CONTINUES BELOW THIS AD However, the Friday report also reflected that the consumers pulled back on spending at restaurants and hotels. It is pertinent to note that Consumer spending powers more than two-thirds of American economic activity. The sharp decline prompted concerns among economists who argue that the steep tariffs on imported goods will erode Americans' resiliency. Consumer economy plunders over fear of Trump Tariffs According to the data released by the US Bureau of Economic Analysis, Personal income fell more than expected for the month, sinking 0.4 per cent. However, the economists argued that the May decline was largely a reflection of Social Security payments returning to more typical levels. In March and April, former public workers received large retroactive payments made under the Social Security Fairness Act due to reduced benefits under the prior legislation. Gregory Daco, chief economist at EY-Parthenon, told CNN that despite the recent months' volatility in those income numbers, the trend is one where income growth 'remains quite subdued." 'Real disposable income (what's left after taxes) is currently trending at a pace of 1.7 per cent year over year,' he said. 'That will bring down consumer spending from the 3 per cent (annual) pace that we were accustomed to through most of 2024 closer to 1.5 per cent over the coming months and perhaps even below 1% in the back half of 2025.' He cautioned that the closer the spending growth gets to 1 per cent, the more vulnerable the US economy becomes. 'You're much more subject to a stalling,' he said. 'You're exposed to price shocks, oil price shocks, tariff shocks, interest rate shocks, stock market shocks, and therefore you're more at risk of experiencing a more significant slowdown or possibly a recession.' STORY CONTINUES BELOW THIS AD However, the figures are still concerning. Major economic forecasts now predict sharply slower growth for the rest of 2025, with real GDP expected to weaken to as low as 1.1 per cent by year-end, compared to 2.5 per cent in late 2024. Economists warn that persistent inflation, higher tariffs, and policy uncertainty are putting additional pressure on household budgets and business confidence. Some analysts caution the US could be facing stagflation — a combination of slow growth and stubborn inflation — rather than a typical recession. The probability of a US recession in 2025 remains significant, with estimates ranging from 25 per cent to 40 per cent depending on the model and scenario. While the latest data do not guarantee an imminent recession, the combination of falling income, weaker spending, and negative leading indicators has heightened risks and could signal more economic trouble ahead.
