MILWAUKEE, WISCONSIN - AUGUST 15: U.S. President Joe Biden speaks to guests at Ingeteam Inc., an ... [+]
In any national election cycle, foreign direct investment is a topic that comes up over and over again. Voters care about it. Candidates argue about it. Sometimes, elections are decided by it. But almost no one calls it by its name.
Think you never heard about FDI in a stump speech or political debate? Think politicians don’t obsess over it? Think again.
Remember Ross Perot’s 1990s-era “giant sucking sound” of jobs going to Mexico?
Or Joe Biden and Donald Trump bickering over who is best placed to bring American jobs back home?
Or handwringing about supply chains and many of the jabs at China?
Those are all examples of FDI. Almost any discussion about manufacturing is related to the topic, in some way or another.
In fact, FDI just might be the single most important campaign issue that is talked about indirectly, without ever being specifically identified. This is the case globally, but is particularly pronounced in the United States — which is ironic because the country is, by most measures, both the largest recipient as well as source of FDI projects on a worldwide basis.
To be fair, FDI can appear to be a niche topic. But it's highly relevant to the business world at all levels and impacts every economy on earth, from the local to the global.
But what is FDI? It is essentially corporate cross-border expansion: where companies set up, invest or expand overseas. The term refers to the investment made by a company in one country into business interests located in another country.
Although the "F" in FDI stands for "Foreign," when it comes to the U.S., interstate investments are just as relevant (for example, a company headquartered in California setting up an office or a factory in another U.S. state).
FDI can take various forms, including mergers and acquisitions, joint ventures, and the establishment of new businesses, facilities or offices. It is a key mechanism of economic development and growth, job creation, technology transfer and tax collection. FDI has a close relationship with trade, and has ancillary effects on imports and exports. FDI has innumerable benefits, which is why cities, counties, states and countries everywhere seek it out.
FDI also has downsides and can distort economies in dangerous ways. But mitigating, or indeed understanding, the risks and rewards of FDI requires more thoughtfulness and clear-headedness than electoral politics often permits.
Because it is an easy issue to exploit, and because few voters — or even politicians — understand it very well, candidates can mischaracterize FDI, painting is as a wholly zero-sum equation. Or they ignore the crucial fact that while U.S. companies do create jobs in other countries with their outward investments, foreign companies bring a heck of a lot of jobs back to the U.S. with their inbound investments.
The former tends to capture more attention than the latter, stoking suspicion in the minds of workers about foreign companies. The Rust Belt factory shuttering its doors in favor of workforce expansion in Asia yields storylines of jobs being sent overseas, but the Hyundai factory opening down the road is not projected as receiving jobs from overseas.
The facts around U.S. FDI need not be subject to scaremongering. More than 8.7 million people were employed in jobs created by FDI into the U.S. as of 2021, according to Statista. The Global Business Alliance, an advocacy group for international companies doing business in the U.S., points out that American workers at international companies make nearly $87,000 annually, 7% higher than the economy-wide average. And while manufacturing is the most emotive of sectors in the national U.S. economic psyche, and one most capable of being exploited in the name of protectionism, it accounts for more than 35% of FDI-supported jobs in the U.S. More strikingly, international companies supported 69% of new U.S. manufacturing jobs from 2014 to 2019, the alliance says. Data from the Bureau of Economic Analysis supports these trends.
The U.S. remains the most successful country in attracting FDI. It ranked first in 2022 for headline FDI (value of investments) as well as the number of greenfield (new) projects, according to the World Investment Report 2023 from the United Nations Conference on Trade & Development.
The FDI knowledge gap means that very often the winners of FDI (or globalization in general) will think they’re the losers — and vote accordingly. The reality is the U.S. is a net beneficiary of FDI, and so are most of the individual states.
