Robust economic system, protected asset demand boosted US dominance in capital flows, White Home says

By Andrea Shalal

WASHINGTON (Reuters) – The energy of the U.S. financial restoration post-COVID and a quest for safe-haven investments helped increase U.S. dominance of worldwide monetary flows, whereas manufacturing incentives led to a surge in international direct funding, the White Home mentioned on Friday.

In its remaining report earlier than President Joe Biden leaves workplace, his Council of Financial Advisers mentioned the U.S. had change into a magnet for international funding given the resilience of the U.S. restoration. The Biden administration’s push for brand new investments in infrastructure, clear vitality and semiconductor expertise attracted international inflows, particularly from shut allies together with Canada, Japan, South Korea and Britain.

“The significance of the US in international capital markets continues to go from energy to energy reflecting our strong economic system,” it mentioned.

The report comes as Biden prepares to depart workplace on Jan. 20, with President-elect Donald Trump’s America First agenda and pledge to impose steep tariffs unsettling many allies and threatening to dampen international investments, business specialists say.

A chapter on worldwide capital flows within the CEA report famous the U.S. obtained 41% of worldwide gross capital inflows in 2022-23, the very best share of any nation, and almost double its pre-pandemic share of 23%.

That got here as total international gross inflows declined to 4.4% from 5.8% of world gross home product, or to $4.2 trillion from $4.5 trillion, relative to 2017-19, in line with Worldwide Financial Fund knowledge. World gross flows into and from China dropped significantly over that interval. 

The U.S. greenback additionally remained the world’s largest reserve foreign money and accounted for an outsized share of worldwide commerce and cross-border monetary transactions, CEA mentioned. The greenback’s utility remained intact regardless of de-dollarization fears fueled by latest use of economic sanctions, it mentioned, citing the depth and liquidity of the U.S. Treasury market and demand for Treasuries as a protected asset.

The greenback has risen by 7.4% in nominal phrases, relative to a basket of trading-partner currencies, since 2022, CEA mentioned, citing Federal Reserve knowledge, and the true trade-weighted worth of the greenback is 15% above its 20-year historic common.

The report highlighted excessive ranges of enterprise funding, one-third of which has gone towards manufacturing unit building in recent times, noting rising productiveness and excessive charges of enterprise formation pushed partially by worldwide financing.

Whereas complete capital inflows are under the height of $2 trillion in 2007 simply earlier than the worldwide monetary disaster, portfolio funding in fairness and debt markets totaled a document $1.23 trillion in 2023, it mentioned.

Britain was the highest contributor to U.S. capital inflows in 2023, adopted by Canada, France, Luxembourg and Singapore.

South Korea was the most important supply of international direct funding within the U.S., together with possession of home firms, new subsidiaries and growth of present operations, with commitments totaling $21.5 billion in 2023.

CEA mentioned the increase got here largely because of focused tax credit below the Inflation Discount Act and the CHIPS and Science Act to advertise renewable vitality and semiconductor work.

The whole inventory of FDI into the U.S. greater than doubled within the final 16 years to $5.4 trillion in 2023 from $2.1 trillion in 2009, CEA mentioned.

U.S. companies additionally proceed to take a position abroad, with the overall inventory of international direct funding by U.S. companies reaching $6.7 trillion in 2024, and new FDI at $364 billion, it mentioned.

Each outbound and inbound investments from China have declined by 23% from 2017 to 2023, CEA mentioned, citing elevated scrutiny of potential nationwide safety dangers.