Will Trump’s tariffs turbocharge foreign investment in America?
Summary
Companies from Asahi to TSMC are expanding production in the country—for now
For Global companies, there is no place quite like America. As growth in China and Europe has slowed, its economy has continued expanding at a decent clip. America remains by far the world’s biggest consumer market, accounting for almost 30% of total spending, and is home to the largest stock of foreign direct investment (FDI), at around $5trn.
Yet under Donald Trump doing business in America has become a trickier proposition for foreign firms. His tariffs are making it more expensive to export their wares to the country. And his erratic way of announcing and imposing them sows uncertainty. In the days after a 25% tariff on Canada and Mexico was rolled out, one-month exemptions were made for cars and other goods covered by North America’s free-trade pact. An initial levy of 10% on Chinese goods was doubled within months of being implemented. On March 11th Mr Trump announced a 50% levy on Canadian steel and aluminium, up from the 25% previously planned, only to backtrack hours later. He recently threatened a 200% tariff on wine and other booze from the European Union.
All this creates a dilemma for foreign companies selling to the American market. Do they double down by relocating a share of their production to the country to avoid tariffs and placate Mr Trump? Or do they seek new customers elsewhere?
Foreign investment in America has soared in recent years. The annual flow of greenfield FDI reached a record $231bn in 2024, up from $97bn five years earlier, according to fDi Markets, a data service (see chart 1). Huge subsidies offered by the Biden administration to build factories for electric vehicles and other green technology as well as semiconductors played an important part in that boom. Mr Trump’s approach, however, is to wield a stick, not a carrot. He hopes that tariffs will encourage even more investment in American manufacturing while filling, rather than draining, the government’s coffers.
That is particularly worrying for foreign companies that generate a large share of their sales in America but have only limited operations there. To identify the main areas of exposure, we analysed the world’s 100 biggest non-American firms by market value, excluding companies in services industries and those that publish insufficient data. We used public disclosures to gauge American revenues. To estimate costs we used reported assets, capital expenditures and employee counts, as well as data from LinkedIn, a social-media site for professionals, and a tally of firms’ manufacturing operations from Dun & Bradstreet, an information provider.
Based on our panel, four groups of foreign firms look particularly vulnerable (see chart 2). The first is drugmakers, such as Novo Nordisk and Roche. America, the world’s biggest health-care market by far, accounts for more than two-fifths of their sales but less than a third of their costs. Manufacturers of electronics, including TSMC and Samsung, also seem exposed, as do European luxury giants like LVMH. Foreign carmarkers are at risk, too, though to varying degrees. Some, such as Porsche, import all the cars they sell in America, according to Bernstein, a broker. Others, such as BMW and Mercedes, have American factories that produce suvs, many of which are sold to locals.
A number of foreign firms have already opted to shift more of their production to America. This month tsmc announced that it would increase its planned investment in the country from $60bn to $165bn between 2020 and 2030. It will build an additional three chipmaking plants, two packaging facilities and a research-and-development centre. Morgan Stanley, an investment bank, notes that a 100% levy on chips from Taiwan, which Mr Trump has talked about, would push the import price of TSMC’s advanced semiconductors above the cost of making them at its factory in Arizona.
TSMC is not alone. CMA CGM, a privately held French logistics firm, recently announced a $20bn investment in America over the next four years. Siemens, a German industrial giant, plans to build two plants in California and Texas costing $285m. Asahi, a Japanese brewer, has said it will expand output at its Wisconsin plant. And some carmakers, including Honda, Mercedes-Benz, and Stellantis (whose largest shareholder, Exor, owns a stake in The Economist’s parent company), have said that they plan to increase production in America.
Investors are having mixed reactions to the strategy. Of the six firms mentioned that have announced plans to invest in American facilities and are publicly traded, three performed better than industry benchmarks in the three days following their announcement and three performed worse. As one consulting boss notes, factories are often depreciated over 20 years, which means companies will be stuck with them long after Mr Trump leaves office, at which point the threat of tariffs could subside.
Moreover, shifting operations to America is not straightforward for many firms. During Mr Trump’s first term Bernard Arnault, lvmh’s boss, helped his industry avoid tariffs by expanding handbag production in America. But repeating the trick will be hard. Part of the allure of luxury products for Americans is their European cachet. The complexity of supply chains adds to the challenge. Some drugs and cars, for example, cross borders many times during the manufacturing process.
Some firms may even intend to quietly pare back their investment plans. In 2017 Foxconn, a Taiwanese maker of electronics, vowed to spend $10bn on a plant in Wisconsin that would employ 13,000 people. Mr Trump visited the proposed site, proclaiming it the “eighth wonder of the world". Yet after much watering down of plans, the company said last year that it had spent just $1bn on the project, and created only 1,000 jobs.
Faced with American tariffs, some foreign companies could instead direct their attention elsewhere. That has been the case with Chinese firms, which bore the brunt of the duties imposed during Mr Trump’s first term. The flow of greenfield FDI from China to America slid from $8.2bn in 2016 to $6.5bn last year. According to Morgan Stanley, listed Chinese firms generated around a quarter of their foreign sales in America in 2024, down from roughly a half in 2016. Instead, they have turned to the fast-growing economies of the global south.
If Mr Trump’s objective is to encourage foreign businesses to build in America, there are more effective policies at his disposal than tariffs. On the campaign trail the president also promised to slash red tape. Tortuous planning processes have long held back American manufacturing. For foreign firms, fixing those would be far more motivating.
