Strong economy, safe asset demand boosted US dominance in capital flows, White House says
2025.01.10 09:20
By Andrea Shalal
WASHINGTON (Reuters) – The strength of the U.S. economic recovery post-COVID and a quest for safe-haven investments helped boost U.S. dominance of global financial flows, while manufacturing incentives led to a surge in foreign direct investment, the White House said on Friday.
In its final report before President Joe Biden leaves office, his Council of Economic Advisers said the U.S. had become a magnet for foreign investment given the resilience of the U.S. recovery. The Biden administration’s push for new investments in infrastructure, clean energy and semiconductor technology attracted global inflows, especially from close allies including Canada, Japan, South Korea and Britain.
“The importance of the United States in global capital markets continues to go from strength to strength reflecting our robust economy,” it said.
The report comes as Biden prepares to leave office 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 foreign investments, industry experts say.
A chapter on international capital flows in the CEA report noted the U.S. received 41% of global gross capital inflows in 2022-23, the highest share of any country, and nearly double its pre-pandemic share of 23%.
That came as overall global gross inflows declined to 4.4% from 5.8% of world gross domestic product, or to $4.2 trillion from $4.5 trillion, relative to 2017-19, according to International Monetary Fund data. Global gross flows into and from China dropped considerably over that period.
The U.S. dollar also remained the world’s biggest reserve currency and accounted for an outsized share of global trade and cross-border financial transactions, CEA said. The dollar’s utility remained intact despite de-dollarization fears fueled by recent use of financial sanctions, it said, citing the depth and liquidity of the U.S. Treasury market and demand for Treasuries as a safe asset.
The dollar has risen by 7.4% in nominal terms, relative to a basket of trading-partner currencies, since 2022, CEA said, citing Federal Reserve data, and the real trade-weighted value of the dollar is 15% above its 20-year historical average.
The report highlighted high levels of business investment, one-third of which has gone toward factory construction in recent years, noting rising productivity and high rates of business formation driven in part by international financing.
While total capital inflows are below the peak of $2 trillion in 2007 just before the global financial crisis, portfolio investment in equity and debt markets totaled a record $1.23 trillion in 2023, it said.
Britain was the top contributor to U.S. capital inflows in 2023, followed by Canada, France, Luxembourg and Singapore.
South Korea was the biggest source of foreign direct investment in the U.S., including ownership of domestic companies, new subsidiaries and expansion of existing operations, with commitments totaling $21.5 billion in 2023.
CEA said the boost came largely as a result of targeted tax credits under the Inflation Reduction Act and the CHIPS and Science Act to promote renewable energy and semiconductor work.
The total stock of FDI into the U.S. more than doubled in the last 16 years to $5.4 trillion in 2023 from $2.1 trillion in 2009, CEA said.
U.S. firms also continue to invest overseas, with the total stock of foreign direct investment by U.S. firms reaching $6.7 trillion in 2024, and new FDI at $364 billion, it said.
Both outbound and inbound investments from China have declined by 23% from 2017 to 2023, CEA said, citing increased scrutiny of potential national security risks.
