The writer is professor of law at City University of Hong Kong and president of the Asia-Pacific FDI Network. X: @jchaisse @FdiAsia

With Donald Trump set to return to the White House in January 2025, the potential reintroduction of stringent trade policies will generate significant challenges for international economic relations. The influence of these policies is likely to extend beyond trade itself, substantially altering foreign direct investment (FDI) patterns.

The Economist Intelligence Unit’s Trump Risk Index and research by Global Trade Alert’s Simon Evenett have identified the following countries as most vulnerable to the trade measures promised by the incoming US government: South Korea, China, India, Japan, Ireland, Italy, Brazil, Indonesia, Kenya, Malaysia, Mexico and Thailand. These nations, which often experience trade surpluses with the US or impose restrictions on imports from the US, can be expected to experience increased scrutiny under the incoming administration’s policies, given their goal to correct perceived economic imbalances. 

Ripple effects

Higher US tariffs may mean other countries experience a decline in export revenues to the US. This could lead to slower economic growth, making them less attractive to foreign investors. South Korea exemplifies this situation. Electronics and automotive exports, significant contributors to South Korea’s economy and major exports to the US, are particularly susceptible to reduced market access. Such restrictions could diminish export revenues and undermine investor confidence in these key industries. 

Trade tensions also heighten economic uncertainty, prompting investors to reassess the risks associated with affected countries. Multinationals could hesitate to invest or expand in nations facing US trade actions because of concerns over market stability and profitability. This is particularly relevant for countries such as China and Mexico, where previous trade disputes with the US have triggered economic instability and strained bilateral relations, signalling potential risks for investors.

Companies may also restructure their global supply chains to circumvent new trade barriers. For example, manufacturers may relocate production facilities from high-risk countries to those with favourable trade relations with the US to avoid tariffs and seek more stable environments.

Countries facing restricted US market access may intensify competition in alternative markets, prompting governments to attract FDI through incentives, regulatory easing and even infrastructure upgrades. In effect, trade tensions will prompt countries to adjust their FDI regulations, fuelling domestic investment laws and government intervention through industrial policy to an extent never seen before. For example, nations may protect strategic industries while promoting investment in others to stimulate growth.

Simultaneously, countries like India, which already benefit from significant investor interest due to its large domestic market and skilled workforce, may liberalise FDI regulations in sectors such as infrastructure and renewable energy. This would not only offset trade losses, but align with efforts to address its development and renewable energy priorities, in turn making it a compelling case for targeted foreign investment.

The return of Mr Trump and his trade policies is likely to have a widespread impact on global FDI flows. The close relationship between trade and investment suggests that policies targeting trade imbalances — the approach the incoming US president is expected to take — will inevitably affect global investment conditions. Countries identified as the most vulnerable must address these pressures by implementing protective measures while maintaining their appeal to foreign investors. For multinational corporations, adjusting to this environment will require reevaluating investment strategies, expanding into diverse markets, and strengthening resilience against policy-driven disruptions.

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This article first appeared in the December 2024/January 2025 print edition of fDi Intelligence