Protection of Foreign Investments and the second Trump administration 

Introduction

Foreign investments are inherently exposed to political risk, which can vary significantly depending on a number of factors, including the industry sector and political environment in the host state. Election years, and even more so, changes in government of the host state, often act as catalysts for the introduction of measures that can drastically affect the value of an investment. It is not uncommon for a new administration to implement policy changes that may lead to the withdrawal of concessions or operating permits, the rollback of incentives or other assurances granted by earlier administrations, the enactment of restrictive legislation or regulatory measures that make profitable operations impossible, or the discriminatory treatment of foreign investors to bolster the domestic economy.

The return of the Trump administration to the White House in January 2025 is not an exception in this regard. It has substantially increased the risk exposure for existing investments. Moreover, foreign investors considering new investments in the US are faced with a complex and evolving political landscape. Consequently, it is imperative for anyone with interests in the US to take proactive steps to navigate this changing environment.

In this article, we give an overview of how President Trump's administration may impact foreign investments in the US and highlight three key tools that can help to mitigate risk and optimise investment protection.

The Trump administration's policies and the impact on foreign investments

Following a campaign that promised to disrupt traditional US policy and upend much of US federal regulation, President Trump's new administration is likely to adopt a broad range of measures that may negatively affect foreign investments. While the renewables, infrastructure and oil and gas sectors are most likely to feel the impact of certain measures, no sector is immune from risk. The new administration's approach, which promises to put American businesses first, is likely to impact foreign investments across all sectors.

For example, on President Trump’s first day in return to office, the White House implemented an “America First” trade policy directive, emphasising that the Trump administration will champion core American interests and prioritise American businesses.¹ This is likely to put international investors at a commercial disadvantage and may make interactions with the US administrative apparatus more cumbersome, in particular for investors from states that the Trump administration perceives as strategic competitors. These investors should anticipate longer review periods and heightened unpredictability in the granting of regulatory approvals.

The Trump administration has also announced plans to pause all policies that favour renewable energies, terminate federal mandates for electric cars, end federal subsidies for the production and purchase of electric vehicles, suspend leasing to wind farms, and revoke inflation subsidies.² These measures threaten to negatively affect the viability of investments in the energy transition space that were made under the presumption of receiving certain incentives and/or subsidies, and in the expectation of a certain future market demand. Certain renewables projects have already been impacted. For instance, Shell has reported impairment charges of $996 million "mainly relating to renewable generation assets in North America", namely its decision to end its involvement in a US Atlantic Shores offshore wind farm project.³

Tariffs have been imposed on imports from a number of jurisdictions, as well as on all steel and aluminium imports, with further measures promised.⁴ Ashurst's international trade team is closely watching this space and has carefully analysed the key trade policies and actions likely to define President Trump’s second term, including potential industry-specific disruptions and international reactions. Their latest briefing explores the implications of these policies for critical sectors and provides insights on what businesses need to know to safeguard their operations and supply chains against emerging risks. For a comprehensive analysis and guidance, read more here. These disruptions are likely to affect many of the same businesses that will feel the effect of the new administration's investment policy, potentially compounding the impact and underlining the need for careful investment planning to establish strong protections. Importantly, this also applies to those businesses now considering new investments in the US, whether to escape tariffs, qualify as American, or benefit from relaxed regulations.

It is important to note that under the US Constitution President Trump can only serve another four years. Accordingly, a new administration may later seek to undo some of the measures introduced by President Trump in yet another policy change – which also makes it imperative for investors contemplating new investments now, either to ensure that products qualify as 'made in the US' or because of less regulated framework conditions, to consider investment protection from the inception stage.

How can foreign investors protect their investments?

There are multiple tools available to protect foreign investments, which investors should consider whether they have existing investments in the US or are contemplating new ones. The availability and effectiveness of these tools may depend on several factors, including but not limited to the nationality of the investor, the nature of the investment, and the bargaining positions of the stakeholders involved. While this is a complex issue that requires careful thought and planning, the following are particularly important:

(1) Public international law treaties

Public international law treaties play a crucial role in protecting foreign investments by establishing a legal framework that guarantees the host state's compliance with certain 'rule of law' minimum standards when interacting with foreign investors and their investments. In the event that the host state fails to comply with these minimum standards, foreign investors have access to a neutral dispute resolution forum. This framework ensures that investors can seek redress and protection against actions by the host state, thereby providing a more stable and predictable investment environment.

The US has in place a relatively extensive network of 39 dedicated bilateral investment treaties (BITs), which cover several African, Latin American, and CIS states. Many investors from Eastern and Central Europe will also be covered under these treaties, while traditionally Western European investors are left without investment protection after negotiations between the EU and the US concerning the Transatlantic Trade and Investment Partnership (TTIP) were abandoned during President Trump's last administration. The same is true for Canadian investors after the North American Free Trade Agreement (NAFTA) was superseded by the United States-Mexico-Canada Agreement (USMCA) in 2020. Unlike NAFTA, USMCA does not provide protection for Canadian investors while (more limited) protection for Mexican investors remains in place. Australian investors in the US have limited protection through a 2004 free trade agreement, which, however, does not offer direct access to international arbitration.

Typical examples of substantive protection standards found in these treaties include a prohibition on the expropriation of foreign investments except under specific conditions, for instance, the expropriation must be for a legitimate public purpose, carried out with due process of law, and accompanied by adequate, prompt, and effective compensation. Moreover, these treaties often oblige the host state not to discriminate against foreign investors and to treat them and their investments fairly and equitably. This 'fair and equitable treatment' standard has been interpreted to include obligations such as ensuring transparency, maintaining the stability of the legal framework, and not frustrating the investor's legitimate, investment-backed expectations. While protection under these treaties is "for free" (for instance, foreign investors do not have to purchase a particular policy or instrument to enjoy the protection provided by investment treaties), there must be a qualifying investment and the investor must be a national of a contracting state.

Foreign investors who consider that they may be impacted by the policies implemented by the new administration should give early thought to whether their existing or contemplated investment(s) in the US is adequately protected. If not, steps ought to be taken now to establish or strengthen that protection. Typically, investment treaties allow for 'investment structuring' such that investors are able to obtain robust treaty protection through establishing investment vehicles in jurisdictions with 'investor-friendly' treaties. Where investments are already in place, foreign investors may also be able to restructure their existing corporate holding structure in order to optimise protection. However, it is vital that this process is undertaken as early as possible and well before any dispute with the host state arises. It will likely be too late for investment restructuring once a dispute has crystalised.

(2) Contractual mechanisms

Investments governed by investment contracts with the host state or host state entity must be considered carefully for potential risks, as these contracts can contain hidden traps. However, when negotiated and drafted effectively, investment contracts are much more than a source for risks and can become part of the investment protection strategy.

Well-crafted contracts can include provisions that mitigate risks, such as stabilisation clauses, dispute resolution mechanisms, and specific performance obligations, thereby enhancing the overall security and predictability of the investment. For example, they may contain provisions which 'freeze' or 'stabilise' certain conditions under the laws of the host state that are imperative for successful and profitable investments. Such clauses may provide that legislation enacted after the execution of the investment contract will not bind the investor, or in the event of a change of law which adversely affects the investor the host government guarantees that the investor is not disadvantaged.

Foreign investors who contemplate relying on policies enacted by the Trump administration in making an investment in the US should give particular consideration to securing such commitments, as the political environment in the US would render such policies vulnerable to reversal after the next election. To ensure the effectiveness of these commitments, as well as the standard commercial terms of the investment contract, it is crucial to include a carefully crafted choice of law provision and dispute resolution mechanism.

(3) (Partial) political risk insurance

A number of home states offer political risk insurance to their nationals through government backed agencies in order to promote foreign investments. In addition, certain intergovernmental insurers as well as private insurers offer relevant insurance products. As is the case for any insurance, political risk insurance comes at a price. However, even partial insurance can add significant value to the overall investment protection strategy for entities investing overseas, in particular in combination with proper investment treaty structuring.

Looking forward

The full impact of President Trump's agenda on existing and prospective foreign investments in the US remains uncertain. However, it is evident that the next four years will bring significant legislative and regulatory changes that have the potential to drastically alter the landscape for foreign investments in the US, affecting their value and/or commercial viability.

Moreover, the US is an economic superpower. Its policies can redirect global foreign direct investment flows by limiting access to the US market. This is likely to intensify competition for foreign direct investment in other regions, prompting governments to intervene with promises of regulatory easing, subsidies, or improved infrastructure in order to attract investors. Those looking to capitalise on such opportunities elsewhere should likewise ensure that they are adequately protected and legally prepared for the possibility that these policies may be reversed or revised, especially if the US changes its stance in the future.

Given these dynamics and the numerous disruptions currently impacting global trade and investments, there has perhaps never been a more critical time for foreign investors to evaluate the tools available to mitigate political risks. As the political and regulatory landscape is in constant flux, investors must be prepared to adapt and continually reassess their options to safeguard their foreign investments. While the value of the 'nuclear option' of pursuing claims directly against the host government should not be underestimated, it is equally important to understand the processes that would underpin such actions, as they may facilitate an amicable settlement.

Authors: Arne Fuchs, Global Head of International Arbitration; Amy Cable, Senior Expertise Lawyer and Katrine Tvede, Associate.