The Australia-US bilateral investment relationship has traditionally been Australia’s single most important source of foreign financing for domestic investment and economic growth. The relationship provides Australian borrowers with access to the world’s deepest and most liquid capital market. It also complements the strong diplomatic and security relationship between the two countries.

Yet the bilateral investment relationship has shown significant weakness over the last three years and Australia has underperformed peer economies in attracting US capital, even before the onset of the pandemic in 2020. The pandemic-induced downturn in global investment and cross-border capital flows, excess saving and weak investment demand in Australia, US tax changes and Australia’s regulation of foreign investment are all potentially implicated in this weakness. Although the pandemic and President Trump’s tax changes are likely to be mainly temporary influences, Australian policy-makers need to pay increased attention to policy settings that may be deterring US investment in Australia, even as some of these temporary negative influences moderate.