The Peterson Institute for International Economics (PIIE) warns that President Trump’s “Liberation Day” tariffs risk deterring foreign direct investment (FDI) in the United States. In their working paper, economists model five scenarios—varying tariff levels, foreign retaliation, and a rise in perceived country risk—and find that investment consistently falls below baseline in every case.
In the most severe scenario—high tariffs combined with retaliation and a higher risk premium—capital inflows are projected to decline sharply. The modeling shows a drop in U.S. and global investment, weakening demand for durable goods and prompting foreign investors to hold back on U.S. manufacturing commitments. The report notes such conditions could also lead to dollar depreciation, mirroring market movements after the April 2, 2025 tariff announcement.
The analysis finds that higher import costs, retaliatory measures, and elevated risk perceptions together erode economic fundamentals, reduce exports and industrial output, and undercut sectors where FDI is typically concentrated. Rather than sparking an industrial revival, the study concludes, the tariffs may depress investor confidence and slow foreign capital commitments to the U.S. economy.
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