In a recent Eurizon SLJ Capital research note, Stephen Jen and Joana Freire examine the implications of the large foreign direct investment pledges made to the U.S. since the start of the Trump administration.
The note argues that while these pledges are substantial, they are unlikely to prevent the dollar’s broader structural adjustment. Instead, the authors suggest that large inward FDI flows may slow the pace of dollar depreciation, while also raising important questions about the relationship between capital inflows, U.S. manufacturing competitiveness and the Triffin Dilemma.
As Stephen and Joana write:
“Some USD10 trillion in new FDI (foreign direct investment) pledges have been made by foreign countries since the start of the Trump Administration, a little more than a year ago.”
The note places these investment pledges within the broader policy objectives of the Trump administration: addressing the external deficit, containing the fiscal deficit, and encouraging foreign investment into U.S. manufacturing. The authors argue that the third objective has produced a striking headline number, but that its currency implications are more nuanced.
They write:
“Such super-sized FDI could slow down the unwind of the Triffin Dilemma, which is the notion that large capital inflows into the US may artificially prop up the dollar and keep it overvalued.”
The research also highlights the importance of the source of these pledges. A significant share comes from oil-exporting countries whose currencies are effectively linked to the dollar, which the authors argue reduces the relevance of those flows for the dollar’s adjustment. Japan and Korea, however, stand out because their pledged investment amounts are large relative to their bilateral trade surpluses with the U.S.
The note also considers whether sustained investment in U.S. manufacturing could eventually improve productivity enough to alter the dollar’s equilibrium value. That possibility, the authors suggest, creates a potential “J-curve” effect in how markets assess dollar mispricing.
As they conclude:
“We maintain our view that the dollar should continue its structural depreciation, but acknowledge that the prospective large FDI inflows will be mild headwinds to our call.”
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ESLJ-171125-R1
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