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A new era for investing in the US? What inbound investors can expect

01 April, 2021

J. Fentress Seagroves
US Inbound XLOS Leader, Inbound Deals Leader, Inbound Advisory Leader, Japan Business Network leader, PwC US

PwC recently hosted a webcast led by Craig Stronberg, Director, PwC Intelligence, focusing on current trends affecting global business. He shared analysis of potential challenges and opportunities in the year ahead from macroeconomic and geopolitical perspectives. Here are some key takeaways from the presentation, which considered prospects for the US operations of global companies in 2021 and beyond.

CEOs say top business threats are changing

Our PwC 24th Annual Global CEO Survey sheds light on top concerns for foreign-based companies doing business in the US. Compared to 2020, perceptions of top threats to business growth have changed significantly. Moving to the top of the list are populism, over-regulation and policy uncertainty. Less concerning to CEOs today are protectionism, trade conflicts and geopolitical uncertainty.

New leadership in Washington signals new business priorities

Inbound investors are closely monitoring Democratic leadership in both the White House and Congress for changes in regulatory frameworks that could affect inbound investment. Topping the investors’ watch list is US engagement with China, economic and pandemic recoveries, and the reexamination of US protectionist measures. Also, President Biden’s proposed $2 trillion infrastructure package could unlock opportunities for foreign investors to get involved in the ambitious plans to renovate and modernize the country’s transportation, communication and power networks.

Uneven global economic recovery signals a complex landscape for US inbound investment

Economic recovery from the COVID-19 recession is underway, but the pace varies and will likely continue to do so. China has already returned to its pre-COVID (2020-Q2) level of economic activity, and the US could follow by mid-2021. While the global trade landscape does remain disjointed and uncertain, CEOs are gaining confidence about the year ahead.

The Biden administration’s stimulus package and expanding vaccine distribution suggest increasing strength in GDP growth in 2021-Q3/Q4 and perhaps for some time thereafter. The Federal Reserve has joined many experts in predicting an imminent bump in consumption as pent-up demand is released later this year. But once the pandemic is behind us, we expect inbound investors may need to adjust to an economy more deeply affected by the pandemic than most realize.

Long-term sustainable annual GDP growth in the US is likely to decline from 2% to 1.7% to 1.5%. This new low-growth era could last a decade or more, along with lower-than-average marginal returns on capital for foreign direct investment (FDI) in the US. There will likely be opportunities for successful FDI — if invested in the right areas and in the right ways. One critical factor to remember is that recovery and long-term growth in the US will likely vary widely, from region to region, state to state, municipality to municipality — and from market to market. More than ever, US inbounds need hyperlocal knowledge and data to capture successful deals.

With rising protectionism, some businesses may need help to satisfy regulators and secure investments

The tide of protectionism is rising worldwide. While China’s increasing global power and US-China trade tensions underlie this trend, US inbound investments and deals, including M&A, may be constrained regardless of national origin. The Committee on Foreign Investment in the United States and other American regulators are using enhanced powers to unwind existing deals and narrow opportunities for some foreign investors. That’s probably our new normal. As the Fourth Industrial Revolution advances, the US will likely not be alone in seeking to shelter critical homegrown technologies from foreign investment. The Biden administration has already enhanced oversight of FDI in supply chains, critical technologies and infrastructure, and consumer data (including geolocation).

We expect US regulators (especially federal agencies like Commerce, Treasury and Justice) to open proactive investigations this year. In particular, they may deploy regulations on the foreign possession of US citizens’ data to compel the dissolution of pending deals. Inbound investors will likely need detailed local knowledge to succeed in deals involving the purchase of US data or acclimating data imported to the US.

Inbounds based in the Asia Pacific region could thrive as trusted sources of investment in the US

One area of exceptional promise is the US post-pandemic investment landscape, particularly for companies based in, or strongly connected to, the Asia Pacific region outside China. We’re watching for several possible signals:

  • Members of the Association of Southeast Asian Nations (ASEAN) overall could return to their pre-pandemic level of growth, though some ASEAN countries dependent on tourism may recover more slowly.
  • Dampened Chinese investment could open opportunities for companies from elsewhere in the Asian Pacific to position themselves as trusted US partners.
  • The US could seek closer ties with ASEAN and its member nations. Japan — as a longtime US ally, a reliant ASEAN partner/mentor, a leader in Asia and a champion of globalization — enjoys a special status as a source of FDI in the US. Japanese companies could stand to benefit from this special relationship.