U.S. Share of Foreign Direct Investment Signals Strength

Jeffrey Roach (00:00):

Hi, I'm Jeffrey Roach, Chief Economist for LPL Financial, and in this latest edition of the Street View Podcast, we'll discuss the economics of trade and how to think about it as investors. So let's set the stage by looking at recent events and what it means for business decisions. First, global, greenfield project announcements are uniquely robust in the United States. So a greenfield project is basically when a company decides to build something totally new from the ground up on land that has never had anything on it before. Think of it like starting with a clean slate. No old buildings to fix up, no outdated pipes or wiring to work around. It's just an open field, perhaps even literally. And the company gets to design everything exactly how it wants. These projects usually pop up when a business wants a new factory, tech hub, warehouse, without the headaches of retrofitting.

Jeffrey Roach (00:55):

It's the corporate version of building your dream house instead of renovating an old fixer upper. Now, the largest single project announced in the first half of 2025 is Taiwan Semiconductor, manufacturing planned $100 billion expansion in the U.S. The second largest project is less than half of that in France, and then the next two largest projects are again, in the United States. This is important because it shows the global attractiveness of foreign direct investment coming into the United States in 2025, even at the height of trade and tariff uncertainty. Second, a big greenfield wave could strengthen the home currency, tighten credit spreads, and raise equity valuations. When a multinational company announces a greenfield project, say a brand new factory or data center, it usually means they're about to pour additional foreign direct investment, FDI would call it, for short into that country. That money doesn't go into stocks or bonds directly.

Jeffrey Roach (01:55):

It goes into construction equipment, hiring, and long-term operations. But here's the ripple effect. Greenfield projects often signal strong confidence in that country's economy, which can make global investors more comfortable to buying that country's financial assets. So even though the project itself isn't a capital markets investment, it can still boost portfolio inflows because investors see real long-term commitments happening on the ground. In some cases, a big greenfield wave can strengthen the currency, tighten those spreads and raise equity valuations, basically because it paints a picture of solid future growth. Third, tariff rates becoming less of a headwind for the U.S. economy. According to Fitch, earlier this month, the U.S. effective tariff rate is now 12.7%. This decrease from late last year reflects the improved dynamics with India, Switzerland, Canada, and Mexico. Today's tariff rates are still a drag, but most global supply chains can handle them. Manufacturing and agriculture feel the most pressure. Yet the current tariffs haven't caused major production drops or big price spikes. Many larger firms have worked around the cost by diversifying suppliers and improving efficiencies. Now, smaller firms don't have that flexibility, so the tariffs hit their profits harder. From a macro perspective, these tariff levels aren't likely to change the overall path of U.S. growth or global trade in a big way. But if trade tensions persist, other major economies could ban together in ways that reduce U.S. influence over time. Well, that's all for now, but please follow us on social media and take care.