Over the past decades, the U.S. and to a substantial degree its Southeastern states have been the beneficiaries of significant foreign direct investment (FDI), which have revived certain rural areas and created economically thriving communities. In Georgia, FDI has been instrumental in developing various industries, such as automotive and manufacturing in general. In particular, the Atlanta area has seen instrumental growth with numerous multinational businesses locating their headquarters in the most populous city in the state.

Based on data reported by the U.S. Bureau of Economic Analysis, at its peak in 2015, FDI to acquire, establish or expand U.S. businesses totaled $439.5 billion. Over the past two years, expenditures by foreign direct investors to the U.S. have declined to $379.7 billion in 2016 and $259.6 billion in 2017. As in previous years, the largest share, about 40 percent, of FDI can be attributed to the manufacturing sector. The largest individual investing country is the U.S.' northern neighbor, Canada, with expenditures of $66.2 billion.

Similar to FDI in the U.S., the state of Georgia has been successful in attracting foreign investment in various industries. In 2016, the Georgia Department of Economic Development's Global Commerce Division reported a record-breaking $6.33 billion in FDI. Aligning with the overall declining trend, expenditures into Georgia subsided by more than 12 percent to $5.56 billion for the fiscal year 2018, creating 27,373 jobs.

While the U.S. remains attractive to foreign investors, the continuous decline in FDI has prompted speculation regarding potential causes. One of those causes may be an overall reduction in investment by businesses. According to a study by the Organization for Economic Co-Operation and Development, FDI decreased globally by 17 percent in 2017. In a statement, the OECD explained this decrease as a logical consequence of the high expenditures in the years 2015 and 2016. Due to OECD analysis, these expenditures partly resulted from financial and corporate restructuring, which has since concluded. Another factor for an FDI decline in 2017 may have been the anticipation of a U.S. tax reform for the following year. Consequently, the U.S. tax reform may stimulate FDI for the year 2018 and halt the downward trend of past years in the most recent fiscal year.

Initially, the response to the Trump administration's tax reform, particularly from German companies, has been positive and created another incentive to enter the U.S. market. This positive response is largely grounded in the reduced corporate tax rate, which allows for a larger initial investment strategy and secures planning on how funds would be allocated. Despite this positive feedback, the ongoing uncertainty on trade policies and resulting potential disputes have led to some German companies halting their investment plans or at least delaying them. Based on statements by the management of several German companies, these delays are generally more prevalent in terms of greenfield expenditures, where the non-U.S. parent company would have to establish a local subsidiary from the ground up. Such expenditures, which are often the most voluminous in terms of funding and public exposure, involve the creation and coordination of local supply chains, as well as the integration of existing cross-border trade. Due to the complexity of these required processes, potential price increases in raw materials and finished products can have a detrimental effect on the ability of a local subsidiary to timely manufacture and deliver products and to retain profitability.

In the wake of growing concern for the future of transatlantic trade and relations, the American Chamber of Commerce in Germany (AmCham), a nonprofit organization supporting a healthy, open and productive business climate between the U.S. and Germany, recently conducted a survey among its member companies concerning the effect of a lingering trade conflict between the U.S. and the European Union. Based on the answers of its member companies, which range from midsize family-owned businesses to global market leaders, AmCham discovered that 40 percent considered the U.S. less attractive for business due to the defused but not yet resolved transatlantic trade disputes.

Despite these ongoing concerns, 82 percent of AmCham member companies taking part in the survey still define the economic relations between the U.S. and Germany as “strong or very strong.” A more cautionary 42 percent of survey participants added, however, that the U.S. had lost some of its attractiveness. According to the survey, this lack of attractiveness may have contributed to the six percent reduction of investment for U.S. companies and 18 percent reduction for German companies. In light of the survey results, AmCham President and CEO of UPS Germany Frank Sportolari urged that these warning signs should not be ignored. Sportolari continued by explaining that, in order to foster trans-Atlantic trade, German companies need a high degree of reliability, transparency and a clear timetable for the settlement of bilateral trade issues.

As the current trade climate persists, non-U.S. and especially German companies have expressed their capability and willingness to adjust to changing market conditions. While such adjustments may result in increased costs and often times complex changes to existing supply chain structures, the key issue that remains is uncertainty; in particular, the uncertainty of whether changing trade policies and market conditions are permanent, and thereby worth adjusting to, or if such adjustments would be rendered irrelevant due to a change in policy within six to 12 months.

In order to harness to the continued economic appeal of the United States and the state of Georgia, it is crucial to provide a stable as well as reasonably predictable public policy landscape, under which foreign investors can plan their entry and expansion in the local markets. Such stability should foster FDI and allow foreign companies to continue to be strong pillars for economic growth of business communities in Georgia and across the U.S.

Sebastian Meis, Baker Donelson, Atlanta.

Sebastian Meis is a cross-border transactional corporate attorney in Baker Donelson's Atlanta office. A member of the firm's global business team, he advises companies on various corporate matters related to doing business in the U.S. and Germany.