Report on US Foreign Direct Investment Policy and its Implications for Sustainable Development Goals

Executive Summary

A recent shift in United States Foreign Direct Investment (FDI) policy indicates a departure from historically objective, security-focused standards towards a more flexible, transactional approach. This change, while potentially serving short-term political objectives, presents significant risks to long-term economic stability and undermines progress towards several key Sustainable Development Goals (SDGs). This report analyzes these policy shifts and their consequences for SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation, and Infrastructure), SDG 16 (Peace, Justice, and Strong Institutions), and SDG 17 (Partnerships for the Goals).

Policy Shift from Institutional Standards to Transactional Leverage

The traditional US approach to FDI has been characterized by openness, with reviews conducted by the Committee on Foreign Investment in the US (Cfius) based on narrow national security criteria. This predictable framework supported stable capital flows, aligning with the principles of SDG 16, which calls for effective, accountable, and transparent institutions. The current administration, however, is refashioning this policy into a tool for bilateral dealmaking. This move erodes the institutional predictability crucial for sustainable development.

Analysis of New FDI Policy Mechanisms

The “America First Investment Policy” introduces several changes that alter the investment landscape:

1. Toughened standards for US-China investments.
2. Expanded Cfius jurisdiction to cover more greenfield investments.
3. A new fast-track process for frequent Cfius filers from allied nations.

While presented as an efficiency measure, the fast-track designation can be used as a bargaining tool. Granting or withholding this status becomes a form of leverage in trade negotiations, potentially undermining the spirit of global cooperation central to SDG 17 (Partnerships for the Goals) by turning allies into transactional partners rather than collaborators in sustainable development.

Case Studies: Precedents and SDG Implications

• The Nippon Steel Acquisition: The administration’s reversal on the acquisition of US Steel was reportedly contingent on Nippon Steel committing to new domestic investments and granting the White House a “golden share” with governance rights. This action represents a significant government intervention in private capital markets, challenging the principles of predictable governance and institutional integrity that underpin SDG 16. It also directly impacts industrial strategy, a key component of SDG 9 (Industry, Innovation, and Infrastructure).
• The TikTok Negotiation: The refusal to enforce the Protecting Americans from Foreign Adversary Controlled Applications Act, which mandates a ban on TikTok on national security grounds, illustrates a prioritization of negotiation tactics over legal obligations. Using the application as a “bargaining chip” in tariff talks explicitly subordinates established national security protocols to short-term financial aims, further weakening the rule of law and institutional credibility as promoted by SDG 16.

Consequences for Economic and Sustainable Development

The introduction of transactional uncertainty into FDI policy has direct consequences for sustainable development targets:

• Reduced Economic Growth and Decent Work (SDG 8): Increased uncertainty for global investors is likely to result in lower investment, higher capital costs, and reduced job creation. This instability directly threatens the goal of promoting sustained, inclusive, and sustainable economic growth and full and productive employment.
• Hindered Industrial Innovation (SDG 9): A volatile investment climate discourages the long-term capital commitments necessary for building resilient infrastructure and fostering the industrial innovation required to achieve sustainable industrialization.
• Erosion of Institutional Trust and Partnerships (SDG 16 & SDG 17): The primary long-term risk is the damage to the US’s reputation as a predictable and secure destination for capital. This erosion of trust in its institutions undermines one of the nation’s key competitive advantages and weakens the global partnerships necessary to achieve the 2030 Agenda for Sustainable Development.

Relevant Sustainable Development Goals (SDGs)

1. SDG 8: Decent Work and Economic Growth

   • The article focuses on Foreign Direct Investment (FDI), a key driver for economic growth. It warns that the shift in US policy could lead to “lower investment, at higher cost, on worse terms, and accompanied by fewer jobs,” directly impacting economic growth and employment, which are central to SDG 8.

2. SDG 16: Peace, Justice, and Strong Institutions

   • The analysis critiques the move away from an investment policy based on “a relatively objective set of security-focused standards” towards a “flexible tool for bilateral dealmaking.” This erosion of predictable, transparent, and accountable governance undermines the principles of strong institutions enshrined in SDG 16. The article notes this policy shift “risks undermining foreign investors’ confidence in the security and objectivity of US markets.”

3. SDG 17: Partnerships for the Goals

   • The article discusses a major shift in international economic policy by the US, a key global actor. This change affects “allied and partner nations” and the global investment environment. The creation of “greater uncertainty” in FDI policy runs counter to the goal of fostering a stable, predictable, and coherent global partnership for development, as promoted by SDG 17.

4. SDG 9: Industry, Innovation, and Infrastructure

   • FDI is crucial for industrial development and infrastructure upgrades. The article mentions the Nippon Steel deal, which was approved after the company was forced to “commit billions of dollars’ worth of new investments in the country.” The overall climate of investment uncertainty threatens the flow of capital needed for industrial and infrastructure projects central to SDG 9.

Identified SDG Targets

1. Target 8.1: Sustain per capita economic growth

   • The article warns that the new FDI policy will have “long-term costs for US companies and consumers” and could lead to “lower investment,” which directly threatens the sustainability of economic growth.

2. Target 16.6: Develop effective, accountable and transparent institutions at all levels

   • The core argument of the article is the degradation of an effective and transparent institution (the Committee on Foreign Investment in the US, Cfius). It describes a shift from “objective standards” to a system where investment screening is wielded “as a weapon against allies” and a “bargaining chip in tariff negotiations,” undermining accountability and transparency.

3. Target 17.13: Enhance global macroeconomic stability, including through policy coordination and policy coherence

   • The article highlights how the US administration’s unilateral policy changes create “greater friction in FDI policy” and “greater uncertainty” for global investors. This lack of policy coherence directly undermines the goal of enhancing global macroeconomic stability.

Mentioned or Implied Indicators

1. Volume of Foreign Direct Investment (FDI)

   • The article explicitly and repeatedly discusses FDI, warning that the policy changes will result in “lower investment.” The total value of FDI inflows would be a direct indicator to measure this impact.

2. Investor Confidence

   • The text states that the new approach “risks undermining foreign investors’ confidence in the security and objectivity of US markets.” This implies that investor confidence surveys or indices could be used as an indicator to measure the effect of these policy shifts.

3. Job Creation

   • The article directly links the potential decrease in investment to negative employment outcomes, stating it would be “accompanied by fewer jobs as companies try to limit their exposure.” The number of jobs created by foreign-owned enterprises would be a relevant indicator.

4. Policy Predictability/Objectivity

   • The article contrasts the former “objective set of security-focused standards” with the current unpredictable approach. An implied indicator would be the degree to which investment review decisions align with stated national security criteria versus being influenced by other negotiating goals, as seen in the TikTok and Nippon Steel cases.

SDGs, Targets and Indicators Analysis

Source: fdiintelligence.com