Donald Trump. Picture: REUTERS
Donald Trump. Picture: REUTERS

Davos — From centre stage in Davos last year, US President Donald Trump told the world’s corporate bosses that America is a great place to invest. It hasn’t quite turned out that way.

Foreign direct investment to the US fell in 2018, and companies gathered at the World Economic Forum (WEF) in the Swiss Alps this year say they are worried Trump’s trade war with China will dampen the global economy and business investments even further.

One key complaint here this week: companies increasingly reliant on consumers in China have had to lower their earnings outlooks as the world’s second-largest economy cools. And while the US administration has cut taxes and regulations to attract new investment, a wave of caution is rippling through many industries in the US.

“The trade war has been very damaging for the US agricultural economy,” said David MacLennan, CEO of US food and agricultural giant Cargill, which announced worse-than-expected results out of China earlier in January. “The longer this goes on, the worse it is,” he told Reuters.

Foreign investment in the US, which includes cross-border mergers and acquisitions and intra-company loans, fell about 18% in 2018 from the prior year, according to the UN Conference on Trade and Development (UNCTAD).

That is close to the 19% year-on-year drop in foreign investment globally. But it is notable given the deregulation and tax cuts that might have otherwise fed into inward investment. In January of last year, at Davos, many executives said they planned to spend money in the US in 2018.

Lenzing moth-balled a $322m project in Alabama to focus on setting up a new production facility in Thailand

While the UN trade agency attributed the global and US declines to the tariffs the US and China have imposed on each other’s imports since mid-2018, foreign investment in China actually rose 3% last year over the previous year. Foreign investment to India rose 7%.

Alan Jope, CEO of consumer goods company Unilever, said the US remains a good market for its products, which include Dove deodorant, Magnum ice cream and Lipton tea. But it is China, where Unilever joined forces with e-commerce giant JD.com last year to move its products around the country, that has become the more resilient market.

Jope said China was “one of our most reliable sources of growth. China provides the new stability in consumer consumption”.

Ripple effects

The US-China trade war has hit industries around the world over the past few months. Big Chinese companies such as Alibaba have shrunk their plans to invest in the US. Taiwan-based Foxconn has scaled back its plans for a Wisconsin factory, and Chinese car maker GAC Motor has also delayed a move into the US market.

In September, Austria’s fibre producer Lenzing halted a planned US expansion, blaming rising tariffs between the US and China.  Chinese textile exports to the US are among the goods facing tariffs. Lenzing mothballed a $322m project in Alabama to focus on setting up a new production facility in Thailand.

To be sure, foreign companies are still investing, particularly in the automotive industry. Volkswagen (VW) said earlier this month that it would invest $800m to build a new electric car at its plant in Tennessee. Toyota and Mazda are working on a new assembly plant, and Daimler and BMW are investing in existing operations.

But the economic malaise driven by the up-ending of trade flows is hitting tech companies hard due to both supply chain disruption and the economic slowdown in China.

This month, Apple warned of disappointing quarterly revenues, citing slowing iPhone demand in China. Samsung, the world’s biggest maker of smartphones and the manufacturer of chips for other smartphone makers including Apple and Huawei, said its fourth-quarter profit likely dropped 29%.

Research showed 27% of executives from outside the US see the country as the number one place with the most potential for growth — down from 46% in 2018

“For the long run ... I worry that the trend will expand to many other countries and industries, and at that time ... we all will be negatively affected,” Ken Hu, deputy chair of China’s Huawei Technologies, said in Davos.

Huawei, the world’s biggest producer of telecoms equipment, is “probably suffering the most right now” because it relies on heavily integrated and globalised supply chains, Hu said.

Trump looms large

As a result of the disruption, Trump’s trade war with Chinese President Xi Jinping is looming large over Davos this year, even if neither man is here.

The International Monetary Fund (IMF) trimmed its global growth forecasts on Monday and a survey by auditing and accounting giant PwC of nearly 1,400 CEOs showed increasing pessimism among business chiefs.

The PwC research showed 27% of executives from outside the US see the country as the number one place with the most potential for growth — down from 46% in 2018.

It’s not only economics that is clouding the skies. Foreign companies, mainly Chinese, also face tighter scrutiny when they bring deals to the US, after the Trump administration, last year, strengthened the powers of the Committee on Foreign Investment (CFIUS), said Stuart Eizenstat, former US ambassador to the EU and now head of law firm Covington & Burlington’s international practice.

CFIUS is an intra-agency panel that reviews acquisitions on national security grounds.

Chinese state-owned Sinochem Group, which has been in merger talks with ChemChina to create the world’s biggest industrial chemicals firm, said that it did not think it could clinch a US acquisition in the current environment.

“You know what’s happening today, so I think you will see there will be less investment going abroad,” Sinochem chair Ning Gaoning said. “The Chinese are getting quite confused. They thought they were welcome to invest in other countries. Now they realise they are not being welcomed all the time.”

Takeshi Niinami, CEO of Japanese brewer Suntory, told Reuters in an interview that the world has “very big emotional leaders” including one in the Washington. “Davos is a body to work on one voice, to give [a message that says], ‘Come on, we have to be rational’. Business should be the one to let them cool down.”

Reuters