The state of play: FDI in the US

Inbound FDI into the US had slowed in the first quarter of 2020, before the Covid-19 pandemic had really made its presence felt. Viola Caon looks at the country’s record leading up to the pandemic.

The US started 2020 with strong outflows in its financial transactions for foreign direct investment (FDI). Data from the US Bureau of Economic Analysis (BEA) shows that the US repatriated a total of $15bn in the first quarter of the year, during the outbreak of Covid-19 and consequent lockdown period.

A spokesperson for the BEA notes that “through the end of 2019, the US was still experiencing higher than normal repatriations of foreign-held earnings, likely due to the Tax Cuts and Jobs Act [TCJA]”.

Due to the TCJA, in 2019 dividends decreased by $454.5bn, to $396.3bn from $850.9bn in 2018, but this still represented more than twice the average annual dividends from the ten years prior to the TCJA being enacted.

More than half of these dividends in 2019 were repatriated from affiliates in three countries: Ireland ($85.8bn), the Netherlands ($74.3bn) and Bermuda ($67.9bn).

By industry, US multinationals in chemical manufacturing ($99.6bn) and computers and electronic products manufacturing ($92.5bn) repatriated nearly half of all dividends in 2019.

While the US repatriated the bulk of the $15.7bn from Europe ($12.4bn), followed by Latin America ($3.7bn) and the Asia-Pacific region ($3.25bn), the only positive figures in direct investment abroad for the first quarter of 2020 were in Africa ($429m) and the Middle East ($393m).

With regard to sectors, the highest outflows for the period were in professional, scientific and technical services (-$16bn), followed by information (-$3.9bn) and wholesale trade (-$2.6bn).

Inward FDI

In terms of FDI into the US, the first quarter of 2020 started with a slowing in capital expenditure. Total FDI into the country stood at $52.6bn, down from the fourth quarter of 2019 ($68.08bn) as well as year on year ($76.7bn).

The highest level of FDI into the US during the first three months of 2020 came from Europe ($36.3bn), with the top three investor countries being Switzerland with $17.7bn, Germany with $6.1bn and France with $4.7bn.

Companies from the UK, however, repatriated $5bn from their foreign affiliates in the US. This is an interesting figure, considering that the UK was the second largest investor into the US in 2019 with $23.4bn, after Germany at $42bn.

The remainder of FDI volumes into the country for the period came from the Asia-Pacific region ($8.5bn), Canada ($6.3bn) and Latin America ($1.7bn).

In line with previous quarters, manufacturing was again the largest sector to attract FDI with a total of $34.9bn, led by chemicals at $15.6bn. It was followed by transportation equipment at $6.7bn and machinery at $5.5bn.