Trump effect: Chinese money in US dries up as trade war drags on

Growing distrust between the United States and China has slowed the once steady flow of Chinese cash into America, with Chinese investment plummeting by nearly 90 per cent since President Trump took office.

The falloff, which is being felt across the economy, stems from tougher regulatory scrutiny in the US and a less hospitable climate toward Chinese investment, as well Beijing’s tightened limits on foreign spending. It is affecting a range of industries including Silicon Valley start-ups, the Manhattan real estate market and state governments that spent years wooing Chinese investment, underscoring how the world’s two largest economies are beginning to decouple after years of increasing integration.

“The fact that the foreign direct investment has fallen so sharply is symbolic of how badly the economic relationship between the US and China has deteriorated,” said Eswar Prasad, former head of the International Monetary Fund’s China division. “The US doesn’t trust the Chinese, and China doesn’t trust the US”

For years, Chinese investment into the United States had been accelerating, with money pouring into autos, tech, energy and agriculture and fueling new jobs in Michigan, South Carolina, Missouri, Texas and other states. As China’s economy boomed, state and local governments along with American companies looked to snap up some of those Chinese funds.

But Trump’s economic Cold War has helped reverse that trend.

Chinese foreign direct investment in the United States fell to $5.4 billion in 2018 from a peak of $46.5 billion in 2016, a drop of 88 per cent, according to data from Rhodium Group, an economic research firm. Preliminary figures through April of this year, which account for investments by mainland Chinese companies, suggested only a modest uptick from last year, with transactions valued at $2.8 billion.

“I certainly hear in conversations with investors a lot of concern about whether the US market is still open,” said Rod Hunter, a lawyer at Baker McKenzie who specializes in foreign investment reviews. “You have a potentially chilling effect for Chinese investors.”

A confluence of forces appear to be at play. A slowing economy and stricter capital controls in China have made it more difficult for Chinese investors to buy American, according to trade and mergers and acquisitions advisers. Trump’s penchant for imposing punishing tariffs on Chinese goods and an increasingly powerful regulatory group that is heavily scrutinizing foreign investment, particularly involving Chinese investors, have also spooked businesses in both countries.

China, which has retaliated against US goods with its own tariffs, may also be turning off the investment spigot as punishment for Trump’s economic crackdown.

©2019 The New York Times News Service