Foreign Direct Investment
This chapter analyzes foreign direct investment flows to the US coming from the Netherlands, Luxembourg and Belgium historically and in 2023.
Foreign Direct Investment in the U.S.
Over the past 20 years, foreign direct investment (FDI) in the United States has more than quadrupled. In 2000, FDI stood at $1.26 trillion, increasing to $5.39 trillion by 2023 (BEA, 2024).
Figure 8: Foreign Direct Investment in the United States on a Historical-Cost Basis
This growth demonstrates the confidence in the US economy by foreign investors. According to the (Kearney FDI Confidence Index, 2024) an annual survey that ranks the markets most likely to attract significant investment over the next three years, the US economy has taken the top ranking for the 12th consecutive year. Part of this is attributed to the robust growth of the US economy, as from the end of 2019 to the end of 2023 the US GDP grew by 8.2%, showing the fastest growth in the G7 after the economic disruption caused by Covid-19. The US economy has grown twice as fast as Canada’s economy, three times as fast as the European Union’s, and more than eight times as much as the United Kingdom’s (Roge Karma, 2024). Additionally, the strong consumer and government expenditure has also contributed to the FDI confidence in the US economy. Despite the Federal Reserve increasing the interest rates in 2022 and 2023, consumer spending still grew by 5.9% (Conerly, 2024).
Figure 9: 2024 FDI Confidence Index World Rankings
However, despite a growth in the foreign direct investment position in the United States on a historical-cost basis, according to (BEA, 2024), expenditures in new foreign direct investment decreased by 28% (57.4 billion) from $206.2 billion in 2022. Expenditures in acquisitions, which accounted for most of the expenditures as usual, were $136.5 billion, while expenditures to establish new US businesses were $7.6 billion and to expand existing businesses of $5.0 billion.
Figure 10: New Foreign Direct Investment by Type (Acquistions, Establishments and Expansions)
The new FDI decrease is mostly attributed to a decline in mergers and acquisitions despite being the biggest recipient of FDI worldwide (Santander Trade, 2024). The drop in M&A in 2023 is attributed to several factors. One of the primary reasons was the valuation gap between buyers and sellers. Buyers were often unwilling to meet the high prices that sellers expected for their companies, which led to many potential deals falling through. In addition to the valuation gap, other challenges further contributed to the drop in M&A activity. High interest rates made financing more expensive, while macroeconomic uncertainty caused hesitation among both buyers and sellers. The year also saw increased regulatory scrutiny, which added complexity to transactions, and new political pressures that created additional risks for dealmakers (Bain & Company, 2024).
While inorganic growth has decreased significantly since 2021, organic growth has remained stable. For example, this is reflected in the growth in greenfield investments between 2022 and 2023. In 2022, greenfield investment expenditures accounted for $8.1 billion, while in 2023 accounted for $12.4 billion. Especially because of the financial instability seen during the last years, firms are gradually opting more for greenfield investments because it is seen as more flexible and less risky, with a higher control over the new operations (BEA 2022; BEA 2023).
Foreign Direct Investment from the Benelux in the U.S.
Regarding the FDI coming from the Benelux region, we can observe in Figure 11 that the Netherlands and Luxembourg are among the top 10 investing countries for FDI during 2021 and 2022 (BEA, 2023). However, when looking at the comparison of the foreign direct investment between the country of foreign parents and the country of the ultimate beneficial owner, we can see a significant difference in the amounts of the Netherlands and Luxembourg.
According to Figure 12, when the green bar is significantly higher than the blue bar, it indicates that companies in these countries frequently serve as pass-through entities for multinationals headquartered elsewhere, as seen in Luxembourg and the Netherlands. For example, the foreign parent position for Luxembourg is $323.7 billion, which is considerably larger than the $39.9 billion position based on the ultimate beneficial owner (BEA, 2023).
Figure 11: Top 10 Investing Countries for FDI in the U.S.
Figure 12: Foreign Direct Investment Position in the United States (FDIUS) by Country of Foreign Parent and of the Ultimate Beneficial Owner, 2023
Moreover, in the following graphs we can observe the foreign direct investment position in the United States on a historical-cost basis for Belgium, the Netherlands and Luxembourg during the years 1980-2023, demonstrating a significant growth during the last 20 years (Bea, 2024).
Figure 13: Foreign Direct Investment Position in the United States on a Historical-Cost Basis from the Netherlands
Figure 14: Foreign Direct Investment Position in the United States on a Historical-Cost Basis from Luxembourg
Figure 15: Foreign Direct Investment Position in the United States on a Historical-Cost Basis from Belgium
The following data highlights, in 2023, the foreign direct investment in the U.S. from the Netherlands, Belgium, and Luxembourg per industry, showcasing key sectors such as manufacturing, wholesale trade, retail trade, information, finance, real estate, and professional services:
Figure 16: Foreign Direct Investment in the Netherlands per Industry Type (2023)
Figure 17: Foreign Direct Investment in Luxembourg per Industry Type (2023)
Figure 18: Foreign Direct Investment in Belgium per Industry Type (2023)
As it can be observed from the graphs, the Netherlands stands out as the leading source of FDI, contributing $717,467 million and significantly outpacing Luxembourg's $246,908 million and Belgium's relatively modest $73,485 million.
The Netherlands leads in manufacturing with $410,567 million in investments, particularly in chemicals ($189,092 million) and technology-related sectors like computers and electronic products ($76,576 million). In contrast, Luxembourg’s manufacturing focus is narrower, with $159,162 million. Belgium lags in this area, capturing only $61,919 million in manufacturing, with limited contributions from sectors like food and chemicals.
The Netherlands demonstrates broader diversification across various sectors, including wholesale trade ($36,565 million), information services ($74,057 million), and professional services ($20,658 million), showcasing its multifaceted approach to FDI in the U.S. In contrast, both Luxembourg and Belgium adopt more focused investment strategies, with both countries prioritizing specific industries that result in less overall sector diversity.
How will Trump's presidency shape the economy?
Even though 88% of the respondents to the 2024 Foreign Direct Investment (FDI) Confidence Index said they were planning to increase their FDI in the range of three years due to their relation to corporate profitability and competitiveness, the risks related to geopolitical tensions and a restrictive regulatory environment also play a role (Kearney FDI Confidence Index, 2024).
There is a lot of uncertainty around foreign investors and their activities in the United States considering the election of Trump as the 47th president of the US. His track record during his previous presidency provides a negative outlook for international trade because of potential trade protectionist policies and his ‘America First’ ideology. For example, following the win in the World Trade Organization dispute against the European Union in 2019, Trump’s government applied tariffs of 10% on aircraft and 25% on agricultural and other products. The automobile and automotive industries were also threatened with potential tariffs of up to 25% (Chatham House, 2019; York, 2024).
Aircraft
Agricultural & other products
Automobile & Automotive industries
Consequently, countries like the Netherlands and Belgium, which have a significant amount of exports in industries such as automotive and capital goods, could be particularly vulnerable to protectionist policies. For example, Belgium's exports in automotive vehicles, parts, and engines have historically faced challenges during trade disputes, and any return to Trump's tariffs could exacerbate declines. Similarly, the Netherlands, with its significant exports of industrial supplies and materials, could experience a negative impact, especially given the interconnected nature of global supply chains in these sectors. Luxembourg would be the least affected country, as it mainly relies on services exports rather than goods.
When President Biden took office in 2021, one of his goals was to calm the tense international trade climate caused by the Trump administration. In June of 2021 they reached an agreement to suspend the tariffs imposed on the European Union for five years. However, the Biden Administration kept most of Trump’s policies around tariffs in place, causing more tax revenue from the trade war tariffs to be collected under his presidency than of Trump’s (York, 2024).
With average tariffs between the EU and the US around 3% in bilateral trade, Trump’s administration certainly provides a negative outlook for the EU, as the EU has a greater export dependency on the US. While in 2022 EU exports to the US accounted for 2.8% of European GDP, US exports to the US only added up to 1.4% of US GDP (IP-Quarterly, 2024).
However, expanding operations into the US could be a strategic move, particularly for those companies with an American export dependency, to avoid issues related to tariffs or trade barriers as well as constantly increasing supply chain uncertainties. The uncertainty around the future of US trade tariffs and the ‘America First’ policies could lead to more Benelux companies opting to establish operations in the US and build their capacity there to maintain their competitiveness in the market and bypass tariffs on manufactured goods exported directly from the EU, as well as to create a backup option to be able to act faster and be more flexible. Establishing a local presence could reduce the dependency on external factors and trade disruptions, gaining access to US talent and labor without the constraints of visa policies and immigration too.
Additionally, a major component of Trump’s first term was the 2017 Tax Cuts and Jobs Act (TCJA), a law that reduced the top U.S. corporate tax rate from 35% to 21% and significantly reshaped how foreign multinationals invest in the United States. The federal corporate tax reduction from 35% to 21% in 2017 was supposed to sunset soon, but with a republican president, senate, and house, that reduction is very likely to stay, and Trump’s intention is to slash the US corporate tax rate further from 21% to 15%. Consequently, it may be favorable to increase the substance in the U.S. and make and leave the profits in the U.S. entity rather than making those profits in the Benelux entity. Through the favorable treatment of dividends in the Benelux region, the shareholders can still move those profits to the parent. (Irwin-Hunt, 2024).
