In 2017, the A.T. Kearney Foreign Direct Investment Confidence Index concluded, “Investors are bullish about economic growth and FDI [Foreign Direct Investment] prospects, but are monitoring political risks for abrupt changes to the business environment.”
Fast-forward to 2018, and that monitoring is heightened. Trade negotiations and legislation having an impact include: The Tax Cuts and Jobs Act, President Trump’s renegotiation of NAFTA and other trade agreements, the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA), and tariffs and trade wars.
Some of these actions may have their intended effect of protecting U.S. companies and the nation’s security. For example, the construction industry should reap benefits from tax cuts that lower their effective tax rates. But while easing financial burdens on U.S. businesses—especially small businesses—may be good for the economy, there is widespread concern regarding actions seen as hostile to international trade. Governmental proceedings, as they unfold day-to-day, are very dynamic and fluid. They represent a confluence of political, economic, security, and social issues, and the complexity of the situation is currently causing large international companies to press pause on their investments.
Yet FDI is critical to a thriving domestic economy. According to the Office of the Chief Economist within the U.S. Department of Commerce, “FDI supports a host of benefits in the United States, such as good jobs and innovation resulting from research and development.” And historically, the U.S. has been about average in terms of its restrictiveness on foreign investment. Currently, however, Congress is reviewing FIRRMA, a proposed bill that seeks to protect national security by limiting foreign control of the country’s critical infrastructure.
Significant upheaval was triggered in the first half of 2018, when the White House announced a 25% tariff on foreign-made steel and 10% tariff on aluminum. The action was largely a response to China’s perceived “dumping” of cheap steel and it made a statement about the Trump administration’s attitude toward global trade relations and the perceived status quo.
Maintaining a healthy global economy based upon reciprocal economic relationships—and with the U.S. as an equitable participant—is key to the stability of our own economy.
Stakes rose much higher in early July, when the U.S. imposed an additional 25% tariff on $34 billion of goods imported from China. China responded with an equivalent tariff on $34 billion of goods it imports from the U.S. By July 10, the Trump administration had released a list of $200 billion worth of Chinese goods that could be subject to 10% tariffs. Hearings on these proposed tariffs are scheduled to occur Aug. 20-23.
Beyond this escalation between the world’s two largest economies, Canada announced that it would match (but not escalate) the dollar value of the U.S.’s steel and aluminum tariffs with tariffs of its own, with affected products including consumer goods. Europe is pondering how it can respond to U.S. tariffs without becoming embroiled in a damaging trade war—a task made more difficult by President Trump’s threats to impose tariffs on European auto imports. Switzerland, Russia, China, India, Canada, Mexico, Norway, and the European Union have begun working with the World Trade Organization (WTO), pursuing dispute settlement.
It’s impossible to judge just how long the domino effect will continue. Some experts are predicting that Europe, China, and other economic powerhouses will form mutually beneficial trade relationships with one another that exclude the U.S.
According to consulting and research firm Rhodium Group, Chinese acquisitions and investments in the U.S. fell 92% in the first five months of this year. CSNBC recently reported “Foreign direct investment worldwide is on the decline due to trade war fears, immigration, and protectionist policies.” This follows FDI that was already in decline. According to the United Nations World Investment Report 2018, global foreign direct investment fell by 23% in 2017, and the UN expected it to grow little (or not at all) in 2018. On July 11, the Bureau of Economic Analysis (BEA) released numbers on expenditures initiated by foreign investors in 2017 (the latest available data), and those expenditures were down 32% since 2016.
Various experts have reported that the construction industry is already feeling the effects of the recent tariffs, not only with higher steel and aluminum prices, but with higher prices on Canadian lumber. The news outlet Route Fifty shared a Moody’s Investors Service report which found that “states with the greatest trade dependency on China, Canada, and Mexico are at highest risk of seeing their tax revenues decline—namely Michigan, Kentucky, and Louisiana.” The report also identified manufacturing hubs like Detroit and Greenville, S.C., as well as port cities, as being at high risk.
FDI raises the standard of living for communities and creates opportunities for construction companies across the U.S. Maintaining a healthy global economy based upon reciprocal economic relationships—and with the U.S. as an equitable participant—is key to the stability of our own economy.
Brian Gallagher is Vice President of Marketing with O’Neal Inc., an integrated architecture, engineering, and construction firm. He can be reached at bgallagher@onealinc.com.
Related Stories
University Buildings | May 5, 2023
New health sciences center at St. John’s University will feature geothermal heating, cooling
The recently topped off St. Vincent Health Sciences Center at St. John’s University in New York City will feature impressive green features including geothermal heating and cooling along with an array of rooftop solar panels. The geothermal field consists of 66 wells drilled 499 feet below ground which will help to heat and cool the 70,000 sf structure.
Office Buildings | May 4, 2023
In Southern California, a former industrial zone continues to revitalize with an award-winning office property
In Culver City, Calif., Del Amo Construction, a construction company based in Southern California, has completed the adaptive reuse of 3516 Schaefer St, a new office property. 3516 Schaefer is located in Culver City’s redeveloped Hayden Tract neighborhood, a former industrial zone that has become a technology and corporate hub.
Mass Timber | May 3, 2023
Gensler-designed mid-rise will be Houston’s first mass timber commercial office building
A Houston project plans to achieve two firsts: the city’s first mass timber commercial office project, and the state of Texas’s first commercial office building targeting net zero energy operational carbon upon completion next year. Framework @ Block 10 is owned and managed by Hicks Ventures, a Houston-based development company.
Market Data | May 2, 2023
Nonresidential construction spending up 0.7% in March 2023 versus previous month
National nonresidential construction spending increased by 0.7% in March, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $997.1 billion for the month.
Hotel Facilities | May 2, 2023
U.S. hotel construction up 9% in the first quarter of 2023, led by Marriott and Hilton
In the latest United States Construction Pipeline Trend Report from Lodging Econometrics (LE), analysts report that construction pipeline projects in the U.S. continue to increase, standing at 5,545 projects/658,207 rooms at the close of Q1 2023. Up 9% by both projects and rooms year-over-year (YOY); project totals at Q1 ‘23 are just 338 projects, or 5.7%, behind the all-time high of 5,883 projects recorded in Q2 2008.
Multifamily Housing | May 1, 2023
A prefab multifamily housing project will deliver 200 new apartments near downtown Denver
In Denver, Mortenson, a Colorado-based builder, developer, and engineering services provider, along with joint venture partner Pinnacle Partners, has broken ground on Revival on Platte, a multifamily housing project. The 234,156-sf development will feature 200 studio, one-bedroom, and two-bedroom apartments on eight floors, with two levels of parking.
Mass Timber | May 1, 2023
SOM designs mass timber climate solutions center on Governors Island, anchored by Stony Brook University
Governors Island in New York Harbor will be home to a new climate-solutions center called The New York Climate Exchange. Designed by Skidmore, Owings & Merrill (SOM), The Exchange will develop and deploy solutions to the global climate crisis while also acting as a regional hub for the green economy. New York’s Stony Brook University will serve as the center’s anchor institution.
Sustainability | May 1, 2023
Increased focus on sustainability is good for business and attracting employees
A recent study, 2023 State of Design & Make by software developer Autodesk, contains some interesting takeaways for the design and construction industry. Respondents to a survey of industry leaders from the architecture, engineering, construction, product design, manufacturing, and entertainment spheres strongly support the idea that improving their organization’s sustainability practices is good for business.
Office Buildings | May 1, 2023
Office building owners face potential legal liabilities when adding new workplace amenities
Many landlords in the war for tenants have turned to offering new amenities such as conference room services, fitness centers with nutritionists, and high-end food and beverage offerings. To provide new services, landlords often engage with third-party vendors, which can present thorny legal liability.
Codes and Standards | May 1, 2023
Hurricane Ian aftermath expected to prompt building code reform in Florida
Hurricane Ian struck the Southwest Florida coastline last fall with winds exceeding 150 mph, flooding cities, and devastating structures across the state. A construction risk management expert believes the projected economic damage, as high as $75 billion, will prompt the state to beef up building codes and reform land use rules.