Trump’s tariff strategy has not only brought a massive win in European trade negotiations, but it has also underscored how crucial U.S. market access is for Mexico, Canada, and China. Tariffs are now strangling foreign direct investment in all three countries, forcing them to either concede to U.S. trade terms, as Europe did, or see their economies take a massive hit.
America entered this trade war in a strong position, because it is far less dependent on trade than its rivals. While trade accounts for 67 percent of Canada’s GDP, 73 percent of Mexico’s GDP, and 37 percent of China’s GDP, it makes up only 24 percent of U.S. GDP. This imbalance gives the U.S. enormous leverage in negotiations.
Trump has placed significant economic pressure on all three countries, particularly Canada and Mexico, where job losses could reach 1.3 percent and 2.3 percent of the workforce, equivalent to about 278,000 Canadian jobs and 1.4 million Mexican jobs. In response, Canada has already announced that it was dropping many of its retaliatory tariffs on U.S. goods, a clear sign of the pressure taking hold.
Much of the investment in Canada and Mexico, particularly from China but also from European allies, was aimed at building factories to manufacture goods tariff-free for export to the United States. Now that Trump has imposed tariffs on both countries, that strategy has collapsed, and investment is drying up. A striking example came last year when U.S. outbound FDI to Canada fell from $1.1 billion to zero. Mexico, once the great beneficiary of nearshoring, faces similar challenges.
From 2018 to 2024, Chinese firms invested more than $12 billion in Mexico, creating an estimated 135,000 jobs in factories built to sidestep U.S. tariffs. But under Trump’s new policies, these investments have come under scrutiny. Projects have been delayed, some expansion plans have been shelved, and Mexican officials have been forced to tighten monitoring of Chinese FDI, which had been massively underreported.
China has been hit even harder. Already facing tariffs on a wide range of goods, Trump added an additional 10 percent to most Chinese imports. Foreign investors have responded by pulling back. FDI inflows to China fell from $51.3 billion in 2023 to just $18.6 billion in 2024, their lowest level in thirty years.
On top of that, China experienced record outflows of foreign direct investment last year, with net FDI dropping by $168 billion in 2024. In 2023, net inflows had totaled only $33 billion, already down 80 percent from the year before.
The Ministry of Commerce reported that in January 2025, just 97.6 billion yuan ($13.4 billion) in foreign investment was utilized, a 13 percent drop from the same month in 2024, following an annual plunge of 27 percent last year to the lowest level since 2016. The exodus is continuing, and with a renewed U.S.–China trade war, China’s already weakened investment climate looks likely to deteriorate further.
By contrast, U.S. inflows rose from $288.7 billion to $307.9 billion in the same period, underscoring how capital is being drawn away from America’s competitors and redirected into the U.S.
Mexico is also facing mounting pressure. Products exported from Mexico that do not qualify as originating under USMCA provisions are now subject to a 25 percent tariff, compared to the 2.5 percent rate they paid previously.
These exposed exports are worth an estimated $300 billion. The uncertainty created by tariffs from Washington and policy shifts under the Sheinbaum administration has discouraged new investment and hiring, raising doubts that the relatively strong investment levels seen in the first half of 2025 will continue.
Canada’s situation is just as bleak. Projections show Canada’s GDP shrinking by 2.6 percent, roughly CAD $78 billion, costing Canadians about $1,900 per person annually. A 25 percent tariff applied across the board could push the Canadian economy into recession by the middle of 2025. The impact is especially severe in manufacturing, which employs 1.7 million Canadians and accounts for more than a tenth of national GDP.
Last year, Canada exported CAD $356 billion worth of manufactured goods to the United States, with 530,000 jobs directly tied to those exports. Tariffs are already devastating key industries. Exports of electronic equipment and electronics have dropped by more than 70 percent, motor vehicle exports by more than half, and transport equipment by nearly three-quarters once retaliation is factored in.
Business leaders warn that Trump’s hardball tactics have chilled overall investment, eroded confidence in cross-border supply chains, and frozen many expansion plans.
Uncertainty surrounding tariffs has also disrupted business planning more broadly. With rates imposed, suspended, and reimposed in rapid succession, companies have been reluctant to commit to long-term projects in tariff-exposed countries.
Analysts warn that Mexico could see exports fall by 12 percent and GDP shrink by 4 percent in 2025 if tariffs remain in place. Canada, whose economy is highly dependent on trade, could slide into recession within six months, with heavy job losses in manufacturing centers like Quebec.
Foreign direct investment is drying up in Canada, Mexico, and China while capital flows into the United States. Instead of attracting more factories into America’s neighbors, tariffs have created a reverse magnetic effect, driving them away.
Companies are being forced to choose between relocating production to the U.S. or losing access to the American market. Trump has used this economic leverage to compel behavioral change from America’s trading partners, strengthening U.S. industry and cementing America’s role as the world’s most desirable investment destination.
The post Trump Tariffs Kill FDI in China, Mexico and Canada, Draw Investment to the US appeared first on The Gateway Pundit.