By Paul Hannon 

Global business investment flows fell sharply in the first six months of the year, as U.S. companies repatriated profits in response to changes in the country's tax law, a United Nations agency said Monday.

Foreign investment in the U.S. declined sharply as Congress prepared for increased vetting of foreign deals involving critical technology, the U.N. Conference on Trade and Development also reported.

UNCTAD said global flows of foreign direct investment were 41% lower in the first six months of 2018 than in the same period a year earlier, and the lowest since 2005. It counts profits made overseas and not repatriated as foreign investment, in addition to the establishment of new operations and the acquisition of existing businesses.

A December revamp imposed a one-time tax on more than $2 trillion of U.S. companies' accumulated foreign profits and removed most U.S. taxes on those companies' future foreign profits. In response, companies began repatriating stockpiled past profits and some of this year's foreign profits.

U.S. companies repatriated $169.5 billion in foreign profits in the second quarter of this year and $294.9 billion in the first. That reduced the money available for investment in the countries from which the profits were moved, UNCTAD said.

"It's a big deal for the host countries in terms of investible funds," said James Zhan, director of UNCTAD's investment and enterprise division.

UNCTAD said the Netherlands, Ireland, Switzerland and Singapore saw the largest withdrawals of U.S. funds, in addition to offshore financial centers in the Caribbean.

Even without the repatriation of U.S. profits, FDI flows were low by historical standards, following a 23% decline in 2017. That is a fresh sign that companies have slowed the pace at which they are spreading their activities and associated jobs across countries.

"All the indicators are pointing to a turning point in globalization," said Mr. Zhan.

Many economists believe globalization has aided economic growth by helping locate production where it is most efficient while spreading new technologies and know-how. Critics say the benefits haven't been shared equally, with low-skilled workers in developed economies seeing their incomes stagnate even as large numbers of people in developing economies have seen their incomes rise.

UNCTAD had expected the U.S. tax overhaul--which included a cut in the tax on company profits--to boost foreign investment there. Instead, UNCTAD recorded a 73% drop in foreign investment into the U.S. to $46 billion, leaving China as the largest recipient country during the first six month of the year with $70.2 billion.

"More stringent investment screening procedures mean that some types of investment the U.S. used to attract will no longer be allowed," said Mr. Zhan.

He added that the "fundamental" attractions of the U.S. to foreign businesses "remain sound" and a rebound in inflows is likely soon.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

October 15, 2018 13:14 ET (17:14 GMT)

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