Strong economy, safe asset demand boosted US dominance in capital flows, White House says

Expanded Summary

Investment Incentives Drive Record-High Global Inflows to the U.S.

• The U.S. captured 41% of global capital inflows, the largest share of any country.
• The dollar remains the strongest global reserve currency.
• Foreign direct investment surged, driven by incentives in manufacturing, clean energy, and infrastructure.

WASHINGTON, Jan. 10 (Reuters) – The United States has solidified its position as a dominant force in global financial markets, thanks to a strong post-pandemic economic recovery and targeted investment incentives, according to a report released by the White House on Friday. The combination of a resilient economy and a reputation as a safe haven for global investments has made the U.S. a magnet for foreign capital.

The Council of Economic Advisers’ (CEA) final report under President Joe Biden highlighted the country’s unparalleled success in attracting international financial inflows, particularly during 2022-2023. The report cited several factors contributing to this trend, including the administration’s focus on infrastructure development, advancements in clean energy, and the expansion of semiconductor manufacturing. These initiatives have drawn significant foreign direct investment (FDI), particularly from allied nations such as Canada, Japan, South Korea, and Britain.

“The importance of the United States in global capital markets continues to go from strength to strength, reflecting our robust economy,” the report stated, underscoring the sustained appeal of the U.S. as a hub for global investments.

Record-High Global Capital Inflows

The U.S. received an impressive 41% of global gross capital inflows during 2022-2023, nearly double its pre-pandemic share of 23%, the CEA report revealed. This marked the highest percentage of global inflows captured by any country, further cementing the U.S. as a global economic leader. The surge in capital flows was attributed to strategic government policies, including subsidies and tax incentives aimed at fostering industrial growth and innovation.

Key areas benefiting from these investments included clean energy projects, infrastructure modernization, and the semiconductor industry, which has been critical for maintaining U.S. technological leadership. These sectors not only attracted foreign investors but also contributed to the overall resilience of the U.S. economy, setting it apart from other major economies struggling with post-pandemic recovery challenges.

The Dollar as the World’s Strongest Reserve Currency

The dominance of the U.S. dollar as the world’s strongest reserve currency further bolstered the country’s financial position. As global markets grappled with economic uncertainty, the dollar’s stability made it the preferred choice for investors seeking safe-haven assets. This, in turn, increased demand for U.S. government bonds, stocks, and other dollar-denominated investments.

Impact of Biden Administration Policies

The report credited much of the investment inflows to policy initiatives spearheaded by the Biden administration. Programs aimed at revitalizing infrastructure, promoting green energy, and advancing manufacturing capabilities played a pivotal role in positioning the U.S. as an attractive destination for foreign capital.

Notably, the Inflation Reduction Act and the CHIPS and Science Act were highlighted as transformative policies that incentivized investment in clean energy and semiconductor manufacturing, respectively. These legislative efforts not only spurred domestic growth but also encouraged international investors to align with the U.S. in tackling global challenges such as climate change and supply chain vulnerabilities.

Transition to a New Administration

The release of the report coincides with President Joe Biden’s final days in office, as he prepares to hand over leadership to President-elect Donald Trump. Industry experts have expressed concerns about the potential impact of Trump’s “America First” agenda on foreign investments. His pledge to impose steep tariffs and adopt protectionist policies could unsettle allies and dampen global capital flows into the U.S.

Despite these uncertainties, the CEA report emphasized that the foundations laid during Biden’s tenure have positioned the U.S. for continued economic strength. “While policy changes under the new administration may influence future inflows, the U.S. remains a global financial powerhouse with unmatched economic resilience,” the report concluded.

A Broader Perspective

As global markets evolve, the U.S. continues to demonstrate its ability to attract substantial foreign investment, leveraging its economic stability, innovative industries, and strategic alliances. The report not only highlights the success of Biden’s policies but also underscores the challenges and opportunities facing the incoming administration in maintaining the nation’s dominance in global financial markets.

While the transition of leadership may bring shifts in policy direction, the report serves as a testament to the enduring strength of the U.S. economy and its critical role in shaping global financial trends.