In any national election cycle, there 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. It’s foreign direct investment, or FDI.
Think you never heard about it in a stump speech or political debate? Think politicians don’t obsess over it? Think again.
Ross Perot’s 1990s-era “giant sucking sound” of jobs going to Mexico? FDI.
Joe Biden and Donald Trump bickering over who is best placed to bring American jobs back home? FDI.
Hand-ringing about supply chains (and many of the jabs at China)? FDI.
Almost any discussion about manufacturing? FDI, 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 US — which is ironic because the US is, by most measures, both the largest recipient as well as source of FDI projects on a worldwide basis, making it the ultimate FDI nation.
To be fair, FDI can appear at first glance to be a niche topic. But it has high relevance 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 FDI has ‘foreign’ in the name, it should be pointed out that when it comes to the US, interstate investments are just as relevant (for example, a company headquartered in California setting up an office or a factory in another US 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 permits.
Because it is an easy issue to exploit, and because few voters — or indeed politicians — understand it very well, candidates play political games with FDI, painting is as a wholly zero-sum equation and ignoring the crucial fact that while US companies do indeed create jobs in other countries with their outward investments, foreign companies bring a heck of a lot of jobs to the country with their inbound investments.
The former tends to capture more attention than the latter, stoking suspicion in the minds of the public about foreign companies. The Rust Belt factory shuttering its doors in favor of workforce expansion in Asia is the stuff of local nightmares (“sending jobs overseas!”), but the Hyundai factory opening down the road is not understood as being the flip side of that coin (“receiving jobs from overseas”, anyone?).
The facts around US FDI are politically inconvenient. For all the scaremongering, more than 8.7 million people were employed in jobs created by FDI into the US as of 2021, according to Statista. The Global Business Alliance, an advocacy group for international companies in the US, points out that American workers at international companies make nearly $87K annually, 7% higher than the economy-wide average. And while manufacturing is the most emotive of sectors in the national psyche, and the one most likely to be exploited in the name of protectionism, it accounts for more than 35 percent of FDI-supported jobs in the US. 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 US remains the most successful country in attracting FDI, ranking first in 2022 for headline FDI (value of investments) as well as numbers of greenfield (new) project numbers, 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 US is a net beneficiary of FDI, and so are most of the individual states, but that’s no fun to talk about on the campaign trail, so unfortunately voters will be none the wiser.