(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, June 25 (Reuters) - Much of the

'de-dollarization' debate has focused on foreign exposure to

U.S. securities like stocks and bonds. But investors shouldn't

ignore foreign direct investment flows, the traditionally sticky

capital that may also be sending out warning signals.

Foreign direct investment (FDI) typically involves an

overseas entity acquiring the assets of a company in another

country or increasing its holdings, often via the purchase of

machinery, plants or a controlling stake. FDI is therefore

considered a longer-term investment compared to portfolio flows,

which can be more volatile.

U.S. President Donald Trump says he has attracted record

foreign investment into the country. Indeed, the White House has

a page on its website with a "non-comprehensive running list of

new U.S.-based investments" since Trump's second term began. The

running total is in the trillions of dollars and includes

pledges from several foreign countries.

Included are more than $4 trillion in U.S.-bound investments

pledged by the United Arab Emirates, Qatar, Japan and Saudi

Arabia. During Trump's trip to the Middle East last month, he

said the U.S. is on track to receive $12-$13 trillion of

investments from countries around the globe, which includes

"projects mostly announced ... and some to be announced very

shortly."

These flows may emerge in full, in time. But official

figures on Tuesday showed that FDI in the first quarter actually

fell to $52.8 billion, the lowest total since the fourth quarter

of 2022. That's well below the quarterly averages of the past 10

and 20 years.

The Commerce Department figures also showed that the U.S.

current account deficit widened to a record $450.2 billion in

the quarter, or 6% of U.S. GDP, meaning FDI inflows barely

covered 10% of that shortfall.

Should the Trump administration be worried?

TARIFF DISTORTIONS

The short answer is probably not, at least not yet.

FDI flows are typically far smaller than portfolio flows

into equity and fixed income securities, so from the perspective

of funding the current account deficit, the drop in FDI is not

as pressing a concern.

On the other hand, if foreign investors are also buying

fewer U.S. securities, capital from elsewhere will be needed to

fund that deficit.

Additionally, America's balance of payments data in the

first quarter was hugely distorted by domestic consumers and

businesses front-running Trump's tariffs, loading up on imports

before the duties kick in later this year.

Trump's bet is that the deficit will shrink this year and

beyond as his 'America First' policies spur more "onshoring"

from domestic firms as they bring production back home and the

weakening dollar helps U.S. manufacturing by making exports more

competitive. The subsequent boom will attract investment from

companies and governments overseas. In theory.

However, these dynamics work both ways.

For example, the European Union is by far the largest

provider of U.S. FDI, accounting for 45% of the total in 2023,

according to Citi. The combination of the continent's German-led

fiscal splurge, U.S. tariffs and 'de-dollarization' concerns

could easily crimp that flow, perhaps significantly.

Another potential risk to U.S.-bound FDI is 'Section 899' -

the possible tax of up to 20% on foreigners' U.S. income that

could be part of Trump's budget plans. A Tax Foundation report

in May found that Section 899 would "hit inbound investment from

countries that make up more than 80 percent of the U.S. inbound

FDI stock."

Industry pushback may water down Section 899, but it remains

a cloud on the U.S. investment horizon.

The U.S. is the world's biggest recipient of FDI, with a 25%

share of global volumes in 2023, up from around 15% before the

pandemic, according to Citi. Its economy is the largest in the

world, a thriving hub of innovation, pioneering technology,

artificial intelligence and money-making potential.

That will always attract FDI. Whether it attracts as much in

this new environment remains to be seen.

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(Editing by Andrew Heavens)