In our global economy, goods and services flow across borders — and so does investment. Investors and businesses seek opportunities around the globe to enhance efficiencies and boost returns.
A recent report from the U.S. Treasury Department generated some news regarding U.S. investment outflows.
As was noted in a Bloomberg story: “The U.S. posted a record cross-border investment outflow in June as China and Japan reduced their holdings of Treasuries and private investors abroad sold bonds and notes. The total net outflow of
long-term U.S. securities and short-term funds such as bank transfers was $153.5 billion, after an inflow of $33.1 billion the previous month, the Treasury Department said in a report today.”
It’s important to point out this data is quite volatile month to month.
For example, Treasury International Capital monthly net flows were a negative $123 billion in March, a positive $125.6 billion in April, a positive $33.1 billion in May and then the negative $153.5 billion in June.
At the same time, however, it pays to look at key factors when it comes to foreign investment in the U.S. — the trends and what’s affecting those investment decisions. After all, investment in the U.S. is critical for economic growth, whether investments are made by residents or foreigners. Most important, by the way, aren’t the purchases and sales of government securities, but investment in the private sector.
The World Bank offers data on net inflows of foreign direct investment for each nation. As explained by the World Bank: “Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital and short-term capital as shown in the balance of payments.”
Net inflows of foreign direct investment for the U.S. grew strongly from 2003 to 2007 — from $63.8 billion to $340.1 billion. During the recession, that plummeted, hitting $153.8 billion in 2009. FDI net inflows then moved back up to $259.3 billion in 2010. FDI net inflows since have meandered, though generally moving down, at $252.5 billion in 2011, $203.8 billion in 2012 and $235.9 billion in 2013.
This decline — or, at best, stagnation — in foreign direct investment net inflows is part of the larger story of a lack of investment in the U.S. that resulted in a deep recession and underperforming recovery. It is a problem that persists.
Investment in the U.S. has benefited from other economies performing even worse recently. But the U.S. clearly needs a dramatic policy shift that will make the U.S. the best place on the planet to invest. That means pro-growth tax relief and reform since both our personal and corporate income tax rates are noncompetitive in the international marketplace.
Just as important is the need for regulatory reform, moving away from the significant actions, policies and threats of recent times that are increasing the costs and uncertainties of investing and doing business in the U.S. For good measure, reining in government spending and implementing sound monetary policy focused on price stability are essential.
There’s no reason for stagnating or declining foreign direct investment in the U.S. Get the policies right, and foreign investors will be more than happy to increase investment here, as has been the case in the past.