Question

China is one of the most popular investment destinations in the world. Throughout much of the 1990s, China accounted for 50% of foreign direct investment (FDI) going into developing countries and between 1994 and 1997, China was the second largest recipient of FDI in the world, after the United States. Do you think the recent corporate tax cuts in the U.S. and the changes in tariff rates in both countries could affect FDI in China? Why? How? What about the FDI in the U.S.?

Answer 1

FDI is a good indication of external investor confidence in the success of economic reforms and prospects as they are a sign of how willing foreign corporations are willing to commit to long term investments in a country. corporate tax cuts in the U.S. and the changes in tariff rates in both countries could affect FDI in China will definitely affect the FDI in the USA. the reduction in tax rate will make the USA a better destination for the FDI as it will give better bottom lines for the corporations. As the ongoing trade dispute between China and the US continues to escalate, tariffs are making exports from China more and more expensive for US importers. Many firms have been doing their sums and looking for new locations to re-site their manufacturing operations. This will also increase the barriers to the trade between the USA and China. Thus it will increase the FDI in the USA.