Jul 25, 2018

Trump's attacks are spooking foreign investors

Illustration: Lazaro Gamio/Axios

President Trump's broad attack on trading partners appears to be spooking investors overseas, whose net direct investment in the U.S. has fallen substantially since his election in 2016, says a leading economist.

Why it matters: Adam Posen, president of the Peterson Institute for International Economics, calls this evidence of the start of the "post-American world economy," in which the U.S. becomes excluded by a large amount of foreign trade. He wrote on the thesis Monday in Foreign Affairs.

What's going on: Posen tells Axios that, despite last year's big Republican tax cut, net foreign direct investment fell to $51.3 billion in the first quarter.

  • That's down 37% from the same quarter in 2017, and 65% from 2016, as measured by the U.S. Bureau of Economic Analysis.
  • It's done so every quarter since the fourth quarter of 2016, when Trump won election.
  • "Basically, net FDI has been falling off a cliff," Posen said.

As an example, Chinese commercial real estate investors have retreated from the U.S. market, selling $1.29 billion in properties in the second quarter while buying only $126 million, the first quarter they have been net sellers since 2008, the WSJ's Esther Fung reported today.

  • Sentiment surveys suggest that U.S. businesses are bullish about the domestic market, reports the NYT's Patricia Cohen. But Posen said that reflects short-term confidence. FDI numbers, conversely, reflect long-term investment decisions made once a decade, he said.
  • FDI leads to high-skilled jobs, R&D at home, and then more investment.
  • "Maybe it will come back, but I think this is a leading indicator. It's a bad warning of what's going on," he said.

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