US foreign direct investment drops sharply in Q1 2025 amid tariff uncertainty

Foreign direct investment (FDI) in the US fell significantly in the first quarter of 2025, dropping to $52.8 billion from a revised $79.9 billion in the fourth quarter of 2024. The decline reflects mounting business uncertainty surrounding President Donald Trump’s proposed tariff plans. As companies navigate potential trade disruptions, FDI has experienced a sharp slowdown, reaching its lowest point since the fourth quarter of 2022. Economists believe the drop is temporary, pointing to several large foreign investments that are expected to boost FDI in the coming quarters.

Notably, Japanese steelmaker Nippon Steel’s $14.9 billion acquisition of US Steel, which closed recently, is expected to positively impact FDI figures in future reports. In addition, foreign automakers like South Korea’s Hyundai Motor and Hyundai Steel have pledged $21 billion in new manufacturing investments in the United States, likely to influence FDI inflows over the next few months.

Trade deficit widens as US businesses front-load imports

The sharp decline in FDI coincided with a widening of the US current account deficit, which reached a record $450.2 billion in the first quarter of this year. According to the Commerce Department’s Bureau of Economic Analysis, this was partly driven by businesses increasing their imports ahead of the application of Trump’s tariff hikes. The US current account data measures the flow of goods, services, and investments into and out of the country, and a large trade deficit is typically offset by foreign investments in US assets.

Despite the uncertainty, Paul Ashworth, chief North American economist at Capital Economics, told Reuters that FDI figures can be volatile due to one-off transactions, including mergers and acquisitions. He cautioned that the first-quarter dip might not indicate a larger, long-term trend and noted that FDI is likely to rebound as foreign manufacturing projects get underway.

While the near-term outlook for US FDI is influenced by tariff-related uncertainty, the broader trend remains positive as foreign companies continue to commit to US manufacturing. Analysts expect FDI to pick up again, driving economic growth in the second half of the year.

(With inputs from agencies)