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Risk in Context

4 US Foreign Direct Investment Considerations for 2017

Posted by Justin Walsleben December 14, 2016

The United States has long been a prime foreign direct investment (FDI) location, with inward investment reaching $420 billion in 2015, according to the US Department of Commerce.

US FDI decisions are driven by economic outlook and opportunity factors, and President-elect Donald Trump has signaled that he favors lower corporate taxes and a less stringent regulatory environment.

Global companies already invested in the US or considering new ventures may be able to capitalize on this but may face challenges as well in the coming year.

Risks and Opportunities

In weighing your US FDI risks and opportunities, consider the following:

  1. Trade and tax policy — Given the incoming administration’s protectionist orientation and promise to cut corporate taxes, “becoming American” through FDI may prove advantageous. While the potential reopening of trade deals, negotiation of new bilateral deals, and prosecution of unfair trade practices may temper some supply chain efficiencies, they could open the door to new supplies, suppliers, and export destinations.
  2. Workers’ compensation, health care, and immigration — All three continue to be significant cost drivers for companies with US employees. The revision or repeal of the Affordable Care Act may impact health care costs under jurisdictional workers’ compensation coverages. And, in several states, undocumented workers are eligible for workers’ compensation regardless of status. Changes to and enforcement of immigration policies could affect the availability of immigrant workers and the health care costs of those already here.
  3. Regulatory compliance — Reducing the regulatory burden on businesses to stimulate reinvestment, hires, and growth could lower operating costs and barriers to US market entry for global companies. However, there could be short-term adjustment costs related to regulatory compliance changes. Additionally, liability and reputational risk exposures could rise if workplace safety or environmental protections are not adequately addressed.
  4. Federal versus state law — Deregulation could devolve more power to US states and free certain sectors from interstate commerce restrictions. Such a change may require a deeper analysis of the comparative FDI advantages of each state’s regulatory and incentives regime. It will also require a better understanding of how changing the rules might impact, for example, financial and insurance operations and purchasing.

Planning for 2017

Carefully watching US developments should be part of every organization’s 2017 business strategy. For global companies, especially new US market entrants, regular assessments of the risks and competitive opportunities are essential. Going forward, gaining local insights from legal, risk management, and other experts is critical to help ensure appropriate business strategies, risk transfer, and risk mitigation plans are implemented in light of any FDI decision.

Justin Walsleben

Global Leader, Multinational Client Service