The US FDI landscape in 2021

05 March, 2021

Amparo Mercader
Transfer Pricing, PwC US
Marco Fiaccadori
Partner, Transfer Pricing, PwC US

Amparo is a Principal in PwC’s Transfer Pricing practice and the Transfer Pricing Leader for inbounds (foreign-owned companies operating in the US market). Marco is a Principal in PwC’s Transfer Pricing practice. He is an economist specializing in supporting multinational companies with their international tax strategies and assisting businesses with all aspects of transfer pricing.

Following the challenging economic climate of 2020 and the change of presidential administrations in January, 2021 is shaping up as a crucial year for foreign direct investment (FDI) in the United States. There are several key trends and points worth noting.

China in 2020 overtook the United States in attracting FDI. New FDI into the United States fell 49% in 2020, according to recent United Nations figures, in great part due to the US struggle in dealing with the COVID-19 pandemic, while FDI into China increased by 4%. The United States remains the biggest FDI market on a cumulative basis, thanks to decades as the most attractive destination for FDI, but current trendlines are favoring China and Asia more generally.

FDI had been decreasing globally since 2016—well before the pandemic began—after decades of rapidly increasing globalization. (Source: United Nations Conference on Trade and Development or UNCTAD) The US-China trade challenges and other tariff disputes have raised questions about the cross-border supply chains on which globalization depends.

While the recent trade developments with China may not have had the expected results, the Biden administration is not anticipated to make a radical shift in policy. Rather, the Biden administration seeks to increase US stimuli to help counter or reverse the negative FDI trend and help bring renewed strength to the US market. President Biden’s ‘Buy American’ plan seeks to promote US production—not necessarily by US firms, but production within the United States regardless of the producer’s headquarter location.

Among the key aspects of the plan:

  • President Biden has called for a $400 billion, four-year increase in government purchasing of US-based goods and services plus $300 billion in new research and development in US technology companies.
  • President Biden has proposed tightening current ‘Buy American’ laws that are intended to benefit US firms but can be easily circumvented by government agencies.

In short, trade imbalances and fiscal policies may result in greater protectionism. In the technology sector, the United States (along with other major countries) is increasing its national reviews of inbound investments. The Committee on Foreign Investment in the US (CFIUS) and other regulators have new powers and are unwinding existing deals and narrowing opportunities for some foreign investors. This will be the norm for years to come.

In this environment, foreign companies looking to invest in the United States in 2021 need to have trusted advisors at their side every step of the way. PwC’s transfer pricing practice assists foreign companies looking to invest in the United States. Also, PwC’s transfer pricing and trade practices can provide support on supply chain planning. Other PwC inbound specialists in the Tax and Advisory practices can answer questions related to starting or expanding business operations in the United States.

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