As 2024 draws to a close, we are entering a critical juncture for global trade and foreign direct investment (FDI).
Donald Trump’s return to the Oval Office, led by Republican majorities in both chambers of Congress, means his protectionist policy proposals could gain the political support needed to become a reality. As we look to 2025, there are four FDI terms that we expect to dominate the headlines.
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1. Explained | What is tariff jumping?
Trump’s threat to impose universal duties of between 10% and 20% on all imports into the US is a serious challenge for foreign companies seeking to export their goods and services into the world’s largest economy. Trump has said that tariffs, if properly used, are a “powerful tool” to achieve economic and other goals, in a strong suggestion of his plan to follow through with his policy proposals.
Companies that rely on the US economy for their current and future revenues will seek to circumvent these trade barriers. If Trump’s universal tariffs come to pass, this could make it more attractive for companies to set up facilities in the US rather than export from abroad. We could see a surge of tariff jumping, where companies invest to get around duties. This has precedent: in the 1980s Japanese companies invested into the US to get around trade restrictions targeting their exports.
2. Explained | What is FDI screening?
A trend that will continue in 2025 is heightened scrutiny on inbound and outbound FDI.
Since the Covid-19 pandemic, major economies have set up legal mechanisms to review cross-border mergers and acquisitions. Deals deemed a threat to national security or competition can be blocked under these FDI screening regimes. High-profile cases, such as Japan’s Nippon Steel’s proposal to acquire US Steel, show that FDI screening is here to stay.
3. Explained | The difference between FDI and FPI
Another major theme as 2025 draws near is the widening gulf between the US economy and other major western economies. Nowhere is this clearer than in the stock market.
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US publicly listed companies, particularly in the technology sector, have outperformed the rest of the world. Since Trump was re-elected in November, capital markets have reacted enthusiastically with large inflows of foreign portfolio investment (FPI) into the US. It is critical to understand the nuances in the types of foreign investment flowing to the world’s largest economy.
4. Explained | What is a free zone?
Since Russia’s full-scale invasion of Ukraine, the world has become more divided between the Western and US-aligned bloc, China- and Russia-aligned countries and the neutral ‘middle powers’ playing in between. These tense geopolitical relations will continue into 2025, meaning businesses will seek ways to insulate themselves.
In an increasingly complex global economy, more companies may move to minimise their operational costs and protect against sudden policy changes. While there is no panacea, advocates argue that special economic zones (SEZs) can offer companies more certainty in our uncertain times. Understanding what exactly are SEZs, or free zones, is critical to understand their role in global trade and FDI.
Understanding the flow of money around the world
The above four terms form part of our video series explaining the main terminology in the world of FDI. There are six more episodes of this series for those who want a deeper understanding of FDI: