Top Four FDI Terms to Know for 2025
As we approach the end of 2024, the landscape of global trade and foreign direct investment (FDI) is entering a crucial phase. With Donald Trump’s potential return to the Oval Office and the likelihood of Republican control in Congress, his protectionist policies may gain the necessary political backing to become reality in 2025. Here are four key FDI terms to keep an eye on in the upcoming year.
1. What is tariff jumping?
The possibility of universal tariffs ranging from 10% to 20% on all imports into the US poses a significant challenge for foreign companies looking to export to the largest economy in the world. Trump believes that tariffs can be a powerful economic tool and companies relying on the US market will need to find ways to navigate these potential trade barriers. We might witness a surge in tariff jumping, where companies invest in US facilities to sidestep duties, similar to what Japanese companies did in the 1980s.
2. What is FDI screening?
In 2025, we can expect continued scrutiny on both inbound and outbound FDI transactions. Following the aftermath of the Covid-19 pandemic, many major economies have established legal frameworks to assess cross-border mergers and acquisitions. Deals that pose national security or competition concerns may face rejection under these FDI screening mechanisms, as seen in cases such as Japan’s Nippon Steel attempting to acquire US Steel.
3. The difference between FDI and FPI
A notable trend leading into 2025 is the growing divergence between the US economy and other major Western economies, particularly in the stock market. US publicly listed companies, especially in the technology sector, have outperformed their global counterparts. Since Trump’s reelection, there has been a significant influx of foreign portfolio investment (FPI) into the US. Understanding the distinctions between FDI and FPI is crucial in comprehending the flow of foreign capital into the US.
4. What is a free zone?
The recent geopolitical tensions, like Russia’s invasion of Ukraine, have heightened divisions between Western-aligned countries, China- and Russia-aligned nations, and neutral middle powers. Businesses are looking for ways to mitigate risks and navigate uncertain global economic conditions. Special economic zones (SEZs) or free zones are being considered by some as a potential solution to provide companies with more stability in an increasingly complex global economy.
These are just a few key terms to keep in mind as we head into 2025. Understanding these concepts is essential for anyone involved in or interested in the world of FDI.
