Trump tariffs kill investment in America

Editor's note: He Weiwen is a senior fellow at the Center for China and Globalization. The article reflects the author's opinions and not necessarily the views of CGTN.

Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest chip maker, has warned the US Department of Commerce that the US's tariffs will affect its $165 billion mega investment plan in Arizona. The investment includes six fab factories, two packaging and testing factories and one R&D center, projecting $200 billion in economic growth. If the tariff mess goes on, the mega investment plan might even be canceled. Similarly, the $1.9 trillion investment vision by Softbank, Apple, CMA and Stellantis, etc. has turned uncertain.

Donald Trump has imposed a 25 percent tariff on automobile and parts imports worldwide, to force foreign automobile exporters to manufacture in America. However, facts so far have turned out just the opposite. The auto industry has cut jobs by 20 percent so far this year. Stellantis, the European auto giant that once planned large investments in the US, has temporarily laid off 900 employees in its five factories in America and suspended operations in Canada and Mexico.

Yale Insight has found that hundreds of billions in investment projects have been paralyzed. Several state governments have also claimed investment slowdowns due to the rising uncertainties brought by tariffs.

The tariff shock has hit foreign investment in America hard. It is reported that French President Emmanuel Macron had appealed for a halt to investing in America. France is the fifth-largest foreign investor in the US. A senior French investment official believes that the US government's decision-making is "totally uncertain and totally unpredictable." Shigeru Ishiba, the Japanese prime minister, told Donald Trump that tariffs would weaken Japan's investment capability.

As a result of investment slowdown or stagnation, the US core capital goods order fell by 1.3 percent in April, the largest fall in six months. The capital investment will be further postponed until policy prospects become clear.

It is only logical that the tariff policy undermines investment in America.

Firstly, it leads to higher prices for consumers and, in turn, to lower market demand and even to an economic recession, triggering a rapid deterioration in consumer confidence and consumer spending. The Michigan University consumer confidence index fell to 50.8 in May, the lowest since June 2022, and the second lowest in history. The first quarter of 2025 already saw the annualized US GDP fell by 0.3 percent.

Secondly, it leads to higher production costs in America, making investment in America less profitable. The 25 percent tariff on steel, aluminum and auto parts will lift passenger car prices by $5000-10,000 per unit, with the average new car price averaging $48,000. In 2024, approximately 13 percent of the total US passenger car sales were cheap cars for lower-income families. At the new, much higher prices, there will be much smaller market demand. In that case, automakers, instead of investing in America, will choose to invest outside America.

Thirdly, the tariff on imports and the inevitable retaliatory tariff on US exports will disrupt the global supply chain and make investment in America a high risk. Take TSMC for example. It depends highly on the global division and supply chain in chip manufacturing. The US accounts for 72 percent of core IP, but only around 11 percent of fab manufacturing and 5 percent of packaging and test. The tariff war and uncertainties around it will make investment in America unfeasible.

Fourthly, the highly emotional and erratic tariff decisions by the Trump administration have made everything unpredictable, and thus no feasibility study possible. Any multi-billion-dollar major investment normally takes about 5 years, from feasibility studies, planning, project construction, all the way to production. The investors have to wait and see, or invest in other countries. The so-called two trillion dollar investment in America, boasted by Trump and his team, is only a very broad intention, not yet realized. In reality, we will see just the opposite — a clear fall in investment.

Tariffs, investing in America, and bringing manufacturing back home to make America great again — this is the core narrative and strategy of Trump and his team. They do not know, or pretend not to know, that tariffs do not encourage investment, rather they discourage it. But they need this policy and this narrative for his constituency because he had pledged so during the presidential campaign. He has to stick to the policy for keeping his vote bank together. This is the only reason, and certainly nothing more.