In brief

In the U.S., rising import costs could drive more foreign investment into domestic production, while reforms to CFIUS may create a more investor-friendly environment – though uncertainty remains. In the EU, transatlantic tensions are prompting closer scrutiny of U.S. investors, even if formal policy shifts are limited for now. Meanwhile, China is taking a two-track approach – retaliating strategically while working to reassure international investors and protect long-term inflows. Across all three markets, trade policy is becoming a key driver of FDI decisions.

From tariffs to tactics: How U.S. policy is reshaping the FDI landscape

Elements of the Trump administration tariff regime and their possible downstream regulatory effects could make the United States more attractive for global investors. At the same time, the ongoing trade conflict could adversely shift how Washington approaches inbound investment. Either way, the Committee on Foreign Investment in the United States (CFIUS), is likely to find itself center stage.

As the absolute cost of exporting to the U.S. increases, the relative cost of investing in the U.S. could decline. Higher tariffs could therefore encourage foreign investors to localize production in the United States to avoid escalating import duties, particularly in sectors most acutely affected by the new regime.

That shift is already underway. General Motors recently announced a $4 billion investment package into its U.S. plants over the next two years to boost U.S.-based manufacturing and reduce its exposure to the Trump tariffs. Mercedes has also announced plans to ramp up domestic vehicle production to reduce the impact of the new automobile tariffs and Honda is shifting its supply chains to use more U.S.-produced parts. Apple, Nvidia, IBM, TSMC, Johnson & Johnson, and Merck are among other companies that have committed to new U.S. investment since the onset of the new Trump tariffs. 

Streamlining foreign investment in 2025

The Trump administration aims to aggressively re-shore U.S. domestic production. It has already announced an initiative to cut red tape for large foreign investors and released the America First Investment Policy directive, which specifically notes the need to streamline regulatory burdens for foreign investors. If that includes making CFIUS more investor-friendly, we could see a shift to a more permissive posture towards foreign investment, including to help offset broader economic disruption.

At the same time, the White House has made clear that “economic security is national security,” meaning that transactions in politically sensitive sectors or businesses (e.g., steel, automotive) that traditionally would not have raised national security concerns could receive greater scrutiny from CFIUS.  However, the Trump administration has emphasized the benefits of foreign investment and the importance of preserving an open investment environment.  This could see CFIUS send fewer reviews to phase II investigations, encourage greater use of short-form declarations, generate fewer RFIs during review, reduce the number of withdraw and refile cycles, and more commercially friendly approaches to mitigation.

Trade negotiations are also gathering pace. If the dust settles in favor of a more liberalized trade and investment environment – resembling, or even improving upon, the pre-tariff status quo – global investors could stand to gain.

Uncertainty reigns amid shifting U.S. trade policy

The Trump tariffs have introduced considerable uncertainty on global capital markets. Many investors may delay new U.S. investments until the outlook stabilizes – or a new administration takes office. Even investors seeking U.S. deals will face an American economy undergoing significant re-adjustment.

While the administration says it wants to attract investment, it may yet use CFIUS as a tool to advance broader trade objectives which could result in collateral damage to investment into the United States. CFIUS’ understanding of “national security” has already expanded in recent years.  In a more assertive trade environment, the Trump administration could be tempted to use national security reviews to signal strategic priorities or apply pressure in negotiations – blurring the line between trade enforcement and investment screening.

For global investors, the implications of this new trade landscape – and the evolving role of CFIUS – merit close attention.

Shifting perceptions: Will the Trump administration’s trade policy alter the EU’s view of U.S. investors?

The EU has long been a key destination for U.S. investors. The EU and its Member States have typically welcomed this investment, treating the U.S. as a trusted partner. U.S. investors have traditionally been considered low risk – on a par with those from the UK.

But the new U.S. tariff regime is straining transatlantic ties. If the EU comes to view the U.S. as an economic adversary rather than an ally, FDI scrutiny could tighten.

For now, most EU Member States’ FDI authorities are adopting a wait-and-see approach as U.S. - EU tariff negotiations continue. Because tariffs and investment screening are not directly linked, a dramatic shift in how U.S. investors are treated seems unlikely – at least based on tariffs alone. U.S. investors will continue to be viewed as trusted partners for the time being. FDI regimes are intended to protect national security and public order so a broader realignment of geopolitical alliances under the Trump administration will have a greater impact than tariffs alone. Notably, growing government influence over private companies, and differing policy views between the U.S. and the EU will play a key role.

Diverging EU responses to U.S. tariffs

Still, because FDI screening is inherently reflective of national policy objectives, indirect effects  cannot be ruled out. Reactions will vary: screening sits with national authorities, and different EU Member States will have different political and economic outlooks. The EU’s new Anti-Coercion Instrument also provides a mechanism to respond collectively – including with FDI restrictions – if the bloc sees U.S. action as economic coercion.

Some EU Member States’ regulators have confirmed that they are actively monitoring developments – and some have even indicated growing concern. A senior German official recently commented that their case-by-case approach allows flexibility in response to geopolitical shifts. While the official didn’t confirm a policy change, they notably declined to rule out a tougher stance on U.S. investment in the future.

So, while the direct impact of U.S. tariffs on EU FDI screening may be limited for now, a more subtle shift in perception is possible – and could shape future decisions. Dealmakers should watch closely.

Retaliation with restraint: China’s calibrated approach to foreign investment

Amid the escalating trade tensions, China introduced a series of countermeasures in response to recent U.S. actions.. Retaliatory measures have included 125% tariffs on U.S.-origin goods, export restrictions, and the addition of 17 American companies to its unreliable entities list in April – effectively cutting them off from Chinese markets. China’s antitrust regulator, SAMR, has also announced antitrust investigations against two specific U.S. companies since early this year.

While many of these steps were not officially framed as retaliatory, they sent a clear signal: Beijing is ready to respond.

Yet the response has been carefully calibrated. Chinese authorities have sought to limit broader economic fallout and preserve business ties with the majority of U.S. companies operating in China. Notably, companies have been added to the unreliable entities list primarily for matters concerning China’s national security and sovereignty. 

At the same time, China has moved to reassure other foreign investors.  On April 6 –two days after announcing the retaliation tariffs – the Chinese Ministry of Commerce, which is in charge of foreign investment policies, hosted a roundtable with over 20 U.S. companies, including Tesla, GE Healthcare, and Medtronic. The key message is to reaffirm that the foreign companies’ legitimate business interests will be protected.

This message echoed earlier statements from President Xi Jinping during a March meeting with international business leaders, and aligns with China’s broader 2025 Action Plan for Stabilizing Foreign Investment, published in February.

This two-pronged approach reflects China’s competing priorities: the strategic need to stay open and attractive to foreign capital, and the political imperative to safeguard Chinese interests in an increasingly tense U.S.-China relationship.

Even after the U.S. and China agreed to roll back most tariffs following trade talks in May, the broader strategic dynamic remains unchanged. Foreign investors should expect continued policy nuance as China walks the line between economic openness and national security.

Key takeaways

• Tariffs are tilting the investment equation. For companies exporting to the U.S., higher tariffs may make direct investment a more cost-effective route – particularly in sensitive sectors like autos, semiconductors, and healthcare.
• CFIUS may become both more visible and more flexible. The administration’s America First Investment Policy could lead to a lighter-touch review process for favored deals – though political considerations may also increase unpredictability.
• EU FDI scrutiny could evolve. While formal restrictions on U.S. investors remain unlikely for now, a shift in political tone and perception – particularly if trade tensions escalate – could subtly influence screening decisions across EU Member States.
• China’s response is strategic, not sweeping. Despite targeted retaliation against U.S. firms, China is actively reassuring foreign investors and doubling down on policy stability – an important signal for companies with a China footprint.
• Geopolitics is now a key factor in deal planning. Investors should factor in not just legal frameworks, but how political narratives and policy objectives may affect deal approvals across major markets.

With thanks to Freshfields Brian Reissaus, Christine Laciak, Andrew Gabel, Ian Allen and Kate Applegate for their contributions to the U.S. update; Christoph Sickinger for the EU update; Ziqi Zhou and Freshfields RuiMin’s Hazel Yin for the China update.

*Freshfields RuiMin is a Joint Operation between Freshfields and RuiMin Law Firm in China, which can engage directly with PRC regulators and offer formal Chinese law advice to both international and Chinese clients.