The golden age of FDI and recent trends

The widespread reduction of tariffs globally following the Tokyo Round of multilateral trade negotiations (1974–79) under the General Agreement on Tariffs and Trade (GATT) opened the path for multinational corporations (MNCs) to pursue comparative advantage through outward foreign direct investment (FDI). Between 1982 and 2006, the world stock of direct investment grew 20 times. Global trade rose from 39% of world gross domestic product (GDP) in 1980 to 61% in 2008.

In more recent years, global FDI has slowed as the world has faced multiple shocks. But this trend differs significantly depending on the region. Select Asian economies, namely China, Indonesia, Malaysia, Singapore, and Taiwan, recorded stellar growth of inward FDI stocks between 2017 and 2023 as well as substantial expansion of their outward FDI stocks. By contrast, growth in North and Central America (dominated by the US) was just shy of 30%, and European FDI recorded almost no growth during the same period.

Since 2022, FDI into China has been in decline, likely reflecting geopolitical tensions with the US and the European Union, but FDI growth in Asia remains robust:

Between 2017 and 2023, Singapore’s inward FDI stock grew by 59%, driven primarily by inflows from East Asia. FDI stock in financial services, which was about 52% of Singapore’s total inward FDI stock in 2017, doubled in value by 2023 and accounts for over half of Singapore’s total inward FDI stock.

During the same period, Indonesia’s inward investment rose by 42%, with investment from East Asia nearly doubling. FDI realization in the metal industry has increased almost fourfold, and the sector’s share in total FDI increased from about 9% in 2017 to 23% in 2023.

In Malaysia, FDI stocks in the manufacturing and services sectors grew 70% and 58% respectively between 2017 and 2023. Within manufacturing, FDI stocks in the electrical and transport equipment category grew 132%.

In Taiwan, newly approved FDI projects since 2017 show a notable concentration in the finance sector. While the number of approved projects declined from 3,415 in 2017 to 2,310 in 2023, the value of these projects increased from US$7.5 billion to US$11.3 billion.

In terms of outward direct investment to other countries, Japan led with US$1.9 trillion outward FDI stock in 2023, followed by Singapore and China. Indonesia and Taiwan both showed the most growth in outward direct investment (about 80%) during this period in the selected countries.

China’s outward FDI stock more than doubled between 2017 and 2024. Singapore, Indonesia, Thailand, and Vietnam led as China’s outward FDI stock destinations in the region, with a concentration in these sectors: leasing and business services industry, information and information technology services, and wholesale and retail.

Factors shaping recent trends

Geopolitics

Trump’s tariff wall has breathed new life into the post-World War II practice of tariff-jumping FDI. To defend their position in an established market, foreign firms may decide to invest more in US facilities, even if the capital and operating costs substantially exceed alternative locations that might serve as export platforms. Trump’s violation of tariff agreements and economic norms will likely encourage other countries to similarly view inward and outward FDI as matters of state policy.

More broadly, great-power rivalry has eroded the dominance of market forces in shaping FDI decisions. Beginning in Trump’s first term, FDI flows between the United States and China have sharply reduced. This happened despite the profitability of US investment in China and Chinese investment in the United States. For MNCs, they may be entering an era when policy guideposts say, “Invest in China or invest in the US, but not both.”

FDI nationalism

Nationalism has long constrained inward FDI, but in recent years antagonism seems to have escalated toward foreign mergers and acquisitions. The hurdles faced by Japan’s Nippon Steel in acquiring U.S. Steel are illustrative. During the 2024 presidential campaign, both Biden and Trump opposed the acquisition of U.S. Steel, even though Nippon Steel promised essential new investment and advanced technology, as well as job guarantees. The main justification appeared to be the iconic history of U.S. Steel, J.P. Morgan’s brainchild at the turn of the 20th century.

Once in the White House, however, Trump greenlighted Nippon Steel’s US$15 billion acquisition in June 2025 on the condition of a “golden share” held by the US government, which will give Trump and his successors a big say in future corporate decisions. Trump’s change of mind was likely motivated by strategic and geopolitical considerations.

State capitalism

The United States’ embrace of state capitalism began in a tentative way with the Biden administration’s CHIPS and Science Act of 2022, which showered generous subsidies on semiconductor firms, including Samsung and SK Hynix from South Korea and Taiwan Semiconductor Manufacturing Company (TSMC) from Taiwan. In his second term, Trump has made state capitalism far more central to US inward FDI, particularly from Asia. His major innovation has been to use trade restrictions as the key inducement for investment pledges.

In March 2025, Trump used tariff threats to extract a commitment from TSMC for an additional US$100 billion of semiconductor investment on US soil, on top of previous commitments made to receive CHIPS Act subsidies. This was followed in July 2025 with Japan’s acquiescence to an unequal agreement as the price for reducing Trump’s new US tariff wall for Japan from 25% to 15%. The agreement, according to the administration, commits Japan to invest US$550 billion in the US. Following the Japanese template, South Korea in August 2025 concluded a nonbinding agreement to invest US$350 billion in US industrial projects approved by Trump. Again, a reduction of new tariffs from 25% to 15% was the key US concession.

State capitalism has also featured in the US response to China’s control of rare earths. The Pentagon invested US$400 million in the domestic firm MP Minerals, and Trump has struck deals with foreign countries to expand production of critical minerals. Russia’s war in Ukraine enabled Trump to reach a deal with President Volodymyr Zelensky for US firms to operate mines in eastern Ukraine. The Trump administration also concluded an opaque mineral deal with Rwanda in the context of brokering a ceasefire between Rwanda and the Democratic Republic of Congo.

Conclusion

Global FDI continues at an annual pace measured in trillions of dollars, but its character has changed. The brightest FDI development in the 21st century is the growth of both inward and outward FDI in Asia. While China is a major source of outward FDI for the region, considerable flows move between the countries of Southeast Asia and between Japan, South Korea, and Southeast Asia. These will lift productivity and per capita income throughout the region.

Meanwhile, political considerations now encroach to a significant extent on the market forces that shaped MNC decisions in the FDI heyday between 1980 and 2010. Accordingly, the global pace of FDI expansion has slowed. No longer can direct investment be counted on to drive world economic growth, and prospects are slim for reviving policies that created the golden age of globalization.

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