Foreign direct investment (FDI) plays a crucial role in enhancing productivity growth, increasing export volumes, and creating high-paying jobs in the United States. According to M. Ray Perryman's analysis in the Victoria Advocate, FDI accounts for approximately 7.9 million direct jobs and contributes to 23% of US exports. The motivations for foreign investment in the US include the large domestic market, free trade agreements with 20 other countries, a business-friendly regulatory environment, stable democracy, strong political and economic institutions, dominant world currency, transparent and predictable legal environment, large and diverse workforce, and high productivity [b2f7cd30]. The United States has maintained its position as the top destination for FDI for 12 consecutive years.
Texas, in particular, has emerged as a leading destination for FDI expenditures, with 660,500 jobs directly supported by majority foreign-owned affiliates. The top investing countries in Texas include the United Kingdom, Germany, Canada, Japan, and France. The software & IT services, business services, industrial equipment, renewable energy, and transportation & warehousing sectors are the top industry sectors attracting FDI projects in Texas [b2f7cd30].
The significance of FDI in the US economy cannot be overstated. It not only drives job creation but also stimulates economic growth and innovation. FDI brings in capital, technology, and expertise from abroad, which helps domestic industries expand and compete in the global market. The presence of foreign-owned companies in the US also fosters knowledge transfer and encourages collaboration between domestic and international firms.
However, recent data suggests that foreign direct investment in the US has experienced a decline. In 2023, FDI into the US dropped by 28% ($57.4 billion) compared to the previous year. This decline may be attributed to several factors, including changes in the global economic landscape and shifts in US policies [1eb8c19c].
The US was ranked the third most competitive economy in the world in 2016 but fell to 10th in 2021 and 12th in 2024. This decline in competitiveness may have affected the attractiveness of the US as an investment destination. Additionally, the real value of foreign-financed cross-border mergers and acquisitions (M&A) in the US dropped by 82% below the 2016 level. Greenfield investments by foreign investors in the US also averaged less than $10 billion per year from 2016 to 2023 [1eb8c19c].
Furthermore, specific sectors such as the electric vehicle and semiconductor industries have seen a decline in foreign investment. Foreign investment in the electric vehicle sector in the US was not significant, and commitments to invest in the semiconductor sector over the next four years totaled only $5.6 billion. These figures indicate a potential shift in investor preferences and highlight the need for the US to remain competitive in emerging industries [1eb8c19c].
The decline in foreign direct investment in the US may also be influenced by populist policies and a nationalist tinge, which have likely diminished the perception of the US as a safe place for foreign investment. The policies and rhetoric of the Trump administration, followed by the Biden administration, may have contributed to this perception [1eb8c19c].
US President Joe Biden's Inflation Reduction Act (IRA) has sparked a global subsidy race; European, Japanese, and Korean policymakers have used the IRA as a pretext to splurge on massive subsidy packages of their own. However, inward US foreign investment decreased in the year following the IRA's approval, with foreign companies investing $148.8bn in the US in 2023, down 28% from 2022 and 59% from 2021. Foreign financing accounted for only 0.6% of total corporate investment in the US in 2023. Investments in new and expanded corporate facilities by foreign firms in all sectors of the US economy during 2023 were estimated to generate just 4,000 jobs. Corporate executives should base their decisions on evidence of actual foreign investment rather than rhetoric about the impact of US industrial policies [4f41f836].
While the decline in FDI is a cause for concern, it is crucial for policymakers and business leaders to recognize the value of FDI and work towards attracting and retaining foreign investment. Creating a favorable business environment, offering investment incentives, and addressing concerns or barriers that may deter potential investors are essential steps in maintaining the US's position as an attractive investment destination. By prioritizing policies that promote FDI and fostering collaboration between domestic and international firms, the US can continue to drive economic growth, job creation, and innovation [b2f7cd30] [1eb8c19c].
According to a report by the U.S. Chamber of Commerce, there are several overlooked facts about international investment that further highlight its importance. Investment from abroad supports millions of American jobs, and U.S. companies invest in foreign markets to serve those markets. Earnings from foreign investments help U.S. companies innovate at home, and U.S. multinational companies are overwhelmingly focused on the United States. Most U.S. investments abroad go to developed countries, and companies that invest abroad are great employers in the U.S. The report also states that "offshoring" is a trivial contributor to the loss of U.S. jobs, and U.S. investments abroad move in tandem with U.S. investment and jobs growth. Investing abroad makes American companies resilient, and international investment is a powerful driver of U.S. exports [60bcf70c].
These overlooked facts provide a more comprehensive understanding of the impact of international investment on the U.S. economy. They highlight the reciprocal nature of investment, with both inward and outward investment playing a significant role in job creation, innovation, and economic growth. It is essential for policymakers and business leaders to consider these facts when formulating strategies to attract and retain foreign investment and to promote a favorable investment climate in the United States [60bcf70c].