Foreign Direct Investment (FDI), as defined by Investopedia, “is an investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.”
In a data reported by the 2017 A.T. Kearney Foreign Direct Investment Confidence Index – a result of global business surveys – the United States of America remains on the top position of the FDI destination for the fifth year in a row, since 2012. According to the survey, “The economy appears to be on an upswing, while its large market and business-friendly environment are enduring sources of investor interest despite e uncertainty associated with President Trump’s policy proposals.”
The United States is truly competing with the entire world in terms of attracting and most especially retaining its worldwide status. But how do the foreign businesses impact the U.S. economy?
Support for the U.S. jobs.
In a 2015 State Study published by Business Roundtable, foreign business – such as international trade, including exports and imports – support the 39.8 million U.S. jobs growing three and a half times faster than the total employment from 2004 – 2013.
In 2013, as cited by the International Trade Administration, FDI contributes to a number of direct and indirect jobs in the U.S. – including the 6.1 million people employed in U.S. affiliates of foreign firms and jobs in sectors that supply goods and services to foreign firms.
Estimating the jobs attributable to FDI, it was found out that in total, 12 million people (8.5 percent of the labor force) have jobs in the U.S. due to either direct employment at foreign firms (6.1 million) or indirect employment (3.5 million).
Helps the U.S. goods exports grow.
The economic impact of FDI goes beyond the U.S. jobs. International companies help drive the American innovation and connect the country to the world. Customers in 234 countries worldwide buy U.S.-made goods and services. And since 2003, U.S. goods exports have grown two times faster than the GDP.
In the 2013 report by the Department of Commerce and the President’s Council of Economic Advisers, it was shown that 20.5 percent of the total source of the U.S. goods exports are from the country’s foreign affiliates.
Moreover, free-trade agreements (FTA) – such as the Trans-Pacific Partnership (TPP, from which the U.S. recently withdrew) and North American Free Trade Agreement (NAFTA) helped fuel America’s export growth to partner countries.
In 2013, 733 billion dollars (46 percent) of the total U.S. goods exports went to its FTA partners, representing a 107 percent increase since 2003.
Drives U.S. innovation.
The FDI also plays an important role in driving the U.S. economy, overall growth, and competitiveness through innovation.
The FDI provides the ability to produce different and more high-technology products which are obtained through Research and Development (R&D) and innovation, substantial financial capital, technological know-how, and managerial expertise.
In 2013, companies like Novartis, Michelin, and Samsung spent 53 billion dollars on American R&D. In addition, Honda and L’Oréal exported 360 billion-dollar worth of goods to America – directing economic activity and generating additional motion in the local and national economy.
FDI make a great and positive impact to the country’s economy – the U.S. welcomes foreign businesses and offers strengths that are well suited to many high-value and firm-wide functions of global companies seeking for growing a business.
However, despite the economic success of America over the years, U.S. President Donald J. Trump’s decisions have many economic experts worried that it might fall anytime as the president recently pulled out America out of the Paris climate accord. A decision that might have the FDI affected and lead to investor-state disputes.
Countries have signed up to the investment treaties on protecting the rights of companies giving them the right to sue a government in an ad hoc arbitration if they feel that their rights have been abused. However, the impact of Trump’s decision will still depend on whether other countries will follow the U.S. lead.
The effects of Trump’s decisions on the FDI isn’t the only problem economists (and the rest of America) have been worrying about. Upon his inauguration, a lot of changes have been imposed – causing him to be criticized and even planned to be impeached, as reported by Trump Today.
But until the FDI remains important to the U.S. economy (as surveys have reported) and Trump has done nothing to corrupt it, then America will remain as the home to more foreign investment and there will be more opportunities to attract more.