Global Investment Pace Completely Transformed, Asia Charges Ahead Alone

Jakarta, CNBC Indonesia - Foreign direct investment (FDI) flows have become a crucial component of global economic growth as the footprint of multinational companies expanded following the Second World War. However, global FDI flows have slowed significantly due to geopolitics, rising nationalism, and state capitalism altering investment streams.

After its golden era during the Tokyo Round period (1974-1979) – where trade barriers such as import tariffs fell – global FDI entered a new phase with a slowing trend.

Between 1982 and 2006, the total stock of global direct investment grew 20-fold. Global trade rose from 39% of world gross domestic product (GDP) in 1980 to 61% in 2008.

This slowing trend has been shaped by numerous global economic shocks, such as the Covid-19 pandemic, protectionist policies, and geopolitical tensions.

Global Trend Slows, But Not in All Countries

In recent years, global FDI has slowed as the world faces various shocks. However, this trend varies greatly by region.

Several Asian economies, namely China, Indonesia, Malaysia, Singapore, and Taiwan, recorded extraordinary growth in FDI stock throughout 2017 to 2023, along with significant expansion in their outward FDI stock.

In contrast, growth in North and Central America (dominated by the United States) was just under 30%, while European FDI showed almost no growth in the same period.

Although the aggregate global FDI trend is slowing, differences between countries persist. Some countries have even seen increases in FDI flows.

Geopolitics as a Determinant of Global FDI Direction

FDI investment decisions are now increasingly influenced by political factors and the role of the state. In the geopolitical context, FDI is no longer solely driven by economic efficiency considerations but has also become a strategic instrument to enhance a country’s bargaining power.

The tariff policies implemented by US President Donald Trump, which once raised concerns among global business players, in practice became a strategy to attract FDI to the United States.

Through increased import tariffs, foreign companies were encouraged to relocate or expand their investments domestically in the US to maintain access to its large domestic market. This phenomenon is known as tariff-jumping FDI.

More broadly, geopolitical rivalry between the United States and China has also shaped new patterns in global investment flows. A sort of “unwritten rule” has emerged, pushing multinational companies to choose to invest in one of the two countries rather than both simultaneously.

This fragmentation ultimately contributes to the decline in FDI flows between the United States and China, even though economically, investments in both countries remain profitable.

When Nationalism Limits FDI Flows

In addition to geopolitical factors, nationalism also plays a significant role in current FDI decisions.

For cross-border merger and acquisition activities, countries tend to show resistance to foreign ownership of domestic companies considered strategic or of high historical value.

The case of the planned acquisition of U.S. Steel by Nippon Steel is a clear example. Although Nippon Steel offered additional investment, technology transfer, and job guarantees, opposition still arose from both US presidential candidates at the time.

This rejection was not solely based on economic considerations but also on the symbolic value of U.S. Steel as a historic company founded by J.P. Morgan.

However, in June 2025, Donald Trump approved the US$15 billion acquisition on the condition that the US government holds a golden share, which provides significant control rights in company decision-making.

This change in stance shows that while nationalism is very appealing in the context of political campaigns, final decisions tend to be more pragmatic. This is particularly influenced by geopolitical considerations and broader economic strategies.

From Incentives to Pressure: The State’s Role in FDI

State capitalism is increasingly prominent in global investment dynamics, marked by the active role of governments in directing strategic investment flows.

In the United States, this approach began to appear through the CHIPS and Science Act policy in 2022 under the Joe Biden administration, which provided large subsidies to global semiconductor companies to encourage the development of the domestic chip industry.

The state capitalism approach became more aggressive in the Donald Trump era, making it a primary instrument to attract foreign direct investment, especially from Asian countries.

Rather than incentives, President Trump instead used tariff threats as trade pressure to increase investment commitments. With these threats, foreign companies and countries were pushed to invest capital in the United States.

Several companies and countries have committed to making major investments in the United States.

In addition to those countries, Indonesia is also facing similar pressure.

The Indonesia-United States trade agreement, pressured in February by Donald Trump and Prabowo Subianto, requires Indonesia to meet investment commitments as a condition to maintain tariff reductions to 19%.

Specifically, Indonesia is asked to make greenfield investments in the United States to create jobs, as stated in the bilateral trade agreement document in Article 6.1, Investment section, point 3.

Greenfield investment itself is a form of FDI where a company builds new business operations from scratch in the host country, including constructing production facilities, offices, and supporting infrastructure.