Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Global foreign investment flows tumble on Trump's tax reform, OECD says

Published 07/27/2018, 11:18 AM
Updated 07/27/2018, 11:20 AM
© Reuters. U.S. President Trump delivers remarks on the South Lawn of the White House in Washington

© Reuters. U.S. President Trump delivers remarks on the South Lawn of the White House in Washington

PARIS (Reuters) - President Donald Trump's tax reform caused a major disruption in global investment flows, with the United States bringing more money home than it sent out in the first quarter for the first time since 2005, an OECD study showed on Friday.

The study from the Paris-based Organization for Economic Co-operation and Development is the first to reveal data on the impact of Trump's Tax Cuts and Jobs Act on foreign direct investment (FDI) flows, the OECD said.

It found that global foreign direct investment outflows tumbled 44 percent to $136 billion in the first quarter of this year, from $242 billion in the previous quarter.

That was largely due to a switch to negative outward investments from the United States - meaning that American companies brought back more money home than they sent abroad in the quarter.

"The U.S. normally is the largest outward investor in the world. So when it switches to negative that has a big impact on the global flows," Maria Borga, a statistician at the OECD's investment division told Reuters.

The Tax Cuts and Jobs Act passed in December was touted as a way to create more jobs, drive U.S. economic growth and level the playing field with companies based outside the United States. It slashed the corporate income tax rate to 21 percent from 35 percent and charges multinationals a one-time tax on profits held overseas.

Outward investment from the United States fell to $-145 billion, registering negative for the first time since the fourth quarter of 2005. The change was due to large repatriations of profits by U.S. parent companies from their foreign affiliates.

"At this point it probably is essentially their financial assets, cash holdings that they're bringing and it's probably not going to have an immediate impact in terms of employment or value added at their foreign operations," the OECD's Borga said.

The long-term impact is more difficult to predict but could be significant and long-lasting, she said.

"We don't really know what's going to happen in the long term. But this has really shifted a lot of the incentives," Borga said.

"For example the cut in the tax rate might make the U.S. a more attractive destination for foreign investment, so you might see more foreign investment into the U.S.," she said, adding that other countries might also be tempted to respond.

© Reuters. U.S. President Trump delivers remarks on the South Lawn of the White House in Washington

With U.S. foreign investment outflows tumbling, Japan became the world's top outward investor in the quarter, Borga said.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.