The rate of annual FDI has slowed in recent years, but how steep has the decline been and can you explain the reasons behind it?
Samford: That’s a very interesting point you bring up and it’s a great place for us to start. As you know, foreign direct investment (FDI) is an economic term used to describe when companies from abroad, i.e., international companies, build facilities, purchase equipment, hire workers, and create products and services in the United States.
You’re right that the rate of annual foreign direct investment flows has slowed in recent years — largely a result of four years of protectionist trade policies, which led many would-be U.S. employers to hit pause on their expansion plans. As a result, annual FDI flows declined 63 percent over the past four years and hit their lowest level in over a decade in 2020.
Cumulatively, however, the United States continues to attract international companies. Total FDI in the U.S. hit a staggering $4.5 trillion in 2019 and internationally-based companies investing in the United States now support a record 7.8 million U.S. workers across the country. And one more stat cannot be overlooked: U.S. workers of international companies produce $1 billion a day through their U.S. exports, shipping $395 billion in “American-made” goods to customers around the world every year. It would be hard to find such an extraordinary boost to the U.S. economy anywhere else.
Why is FDI so important to the manufacturing sector, in particular?
Samford: FDI’s footprint in the U.S. manufacturing sector is really remarkable. International companies employ 22 percent of America’s manufacturing workforce and created 80 percent of new U.S. manufacturing jobs in the past five years. Pair that with the fact that international companies offer U.S. workers an average of $82,600 in annual compensation — 20 percent more than the private-sector average — and you quickly realize that these companies are creating the types of opportunities that workers dream of and politicians fight over.
But I also want to highlight the potential that FDI has on the future of America’s manufacturing workforce. Not only do foreign-headquartered companies that invest in the United States bring the capital they need to operate, but they also tap into world-class industry know-how that boosts America’s ability to compete on the global stage.
Take Volkswagen, for example: The German-headquartered company is investing heavily in America’s future as a manufacturing powerhouse through a comprehensive workforce development program near its manufacturing plant in Chattanooga, Tennessee, which includes everything from digital fabrication labs in the community’s public schools to an innovation hub at the University of Tennessee, Knoxville.
And this investment in America’s workforce doesn’t stop at the manufacturing sector. We also see it in examples like Zurich North America’s first-of its-kind apprenticeship program, where the Switzerland-headquartered insurance provider is investing in our country’s future by providing incredible opportunities for apprentices to secure associate degrees while training with the latest technology to meet the challenges of a rapidly changing world.
How does FDI impact innovation?
Samford: Global companies are uniquely positioned to raise America’s innovation game because of their access to global capital, world-class expertise, and commitment to reinvest their profits back into their U.S. operations. By definition, these companies have succeeded in their home market before they expand their operations to the United States. And when they “import” those best practices, America’s workforce benefits through higher human capital development and worker productivity.
If FDI were a car on the highway, the car is slowing down, but it is not in reverse.
American scientists and engineers at international companies — more than a quarter million of them according to government data – are also fueling America’s private-sector research and development. Annually, international companies spend more than $67 billion on U.S. R&D activities, or 15 percent of all private-sector R&D performed in the United States.
I mentioned earlier that FDI flows had dropped 63 percent under the previous administration, but it’s worth looking further into that stat. The one component of FDI that prevented that statistic from being even worse was “reinvestment of earnings,” i.e., current investors taking their profits and reinvesting them back into their U.S. operations. These reinvestments made up 51 percent of all FDI in the U.S. last year.
Actions like these demonstrate that international companies are here to stay and are deeply invested in growing America’s innovation advantage.
Can foreign investors address the need for workers to be upskilled in the post-pandemic environment?
Samford: Not only can they — they are. Take a look at Toyota Motor North America, which has committed through its Pledge to America’s Workers to provide 200,000 workforce training opportunities over the next five years through apprenticeships, work-based learning opportunities, retraining, on-the-job training, and other educational opportunities. They also launched a new virtual education platform which aims to increase STEM-based opportunities for underrepresented groups in the field.
These employers bring cutting-edge technology and resources to spur U.S. entrepreneurship and ensure America’s future workforce can meet the challenges of a competitive global economy.
STEM education is a huge component of this effort, and Panasonic’s partnership with Kareem Abdul-Jabbar’s Skyhook Foundation in the greater Los Angeles area is a great example. Panasonic and Skyhook are working to address the widespread gap between future tech jobs and access to science, tech, engineering, arts. and math education, especially in underserved communities by delivering immersive, hands-on outdoor STEM learning opportunities for students, even throughout the pandemic.
The COVID-19 pandemic revealed the need to shorten supply chains for everything from pharmaceuticals to PPE to consumer goods. How does FDI help in this regard?
Samford: If anything, the pandemic revealed the importance of global connections and diverse supply chains. For the same reason we are told not to invest all our retirement nest egg in one stock, growth and resiliency are best achieved through diversification.
Unfortunately, the pandemic sent politicians on both sides scrambling to convince voters they could lead through this crisis, resulting in a cattle call of COVID-19 policy proposals. Espousing “economic resilience,” “supply chain self-sufficiency” and “buy American,” these well-intentioned protectionist ideas would all sever America’s cross-border business connections.
FDI is a great yardstick for measuring America’s economic competitiveness, and as we have seen, protectionist trade policies lead to less investment.
As I write this, France-headquartered Sanofi just announced it will manufacture 200 million doses of Moderna Inc.’s COVID-19 vaccine, helping to relieve a critical bottleneck. It is the third time this international company and major U.S. employer has marshalled its resources to produce another company’s vaccine, even as it is spending considerable resources on developing its own treatments.
Roche, a pioneering healthcare company, created the first commercial SARS-CoV-2 test in March 2020 to meet urgent medical needs extremely early on in the pandemic. We also saw Medtronic, a global leader in medical technology, publicly share the design specifications for its Puritan Bennett 560 ventilator, allowing other companies to copy it in an effort to increase global ventilator production.
Global companies are uniquely positioned to raise America’s innovation game.
So, unfortunately, the localization of supply chains ends up reducing competition, stands in the way of potentially life-saving innovation, makes America less competitive for international investment, and more vulnerable to future crises.
Importantly, how does FDI benefit local U.S. companies — our readers — in the areas in which they choose to locate? Does FDI create a synergistic environment for U.S. companies?
Samford: Global companies are deeply invested in the communities in which they sustainably operate. In fact, for every job at an international company in the United States, three more are supported in the community.
International companies place a huge emphasis on sourcing from local supply chains, and I cannot overstate the benefits that international companies bring to U.S. small businesses. Over the past decade and a half, international companies expanded the total amount of business they do with U.S. suppliers by nearly 30 percent in real terms, jumping from $1.5 trillion to $2.4 trillion. In the manufacturing sector, business between international companies and domestic suppliers rose by nearly 70 percent during that same period. That is more than 14 times greater than the overall growth rate achieved by all U.S. businesses.
And this symbiotic relationship between international companies and U.S. suppliers has been accentuated by the pandemic. I know of a couple of companies that at the onset of the pandemic reached out to their U.S. small business partners just to make sure they were able to weather the economic storm of the past year.
What is the Biden administration doing to encourage FDI?
Samford: Time will tell, but there have been some promising early signs. The administration has pledged to reestablish good relationships with our allies. And our new U.S. Trade Representative, Ambassador Katherine Tai, recently stressed the importance of pursuing “trade policies that advance the interests of all Americans — policies that recognize that people are workers and wage earners, not just consumers.” Such a recognition is tailor-made to encouraging more job-creating foreign direct investment.
Is there anything else you would like to add?
Samford: First, thanks for the opportunity to share my perspective. Second, there is no doubt that the pandemic has initiated an important debate about the value of a global economy. While the calculus of trade policy can be complex, our connection to the global economy is very tangible. The cars we drive, the coffee we drink, the technology that allowed us to stay connected with loved ones this past year, and, in many cases, the paychecks that our friends and family earn — they all exemplify the contributions that international companies make into benefiting our daily lives.
As America builds back from the devastating effects of the pandemic, it is my hope that we will harness those connections and welcome the full potential of the world’s most successful employers.
Note: Data in this article is from the Bureau of Economic Analysis (BEA), Survey of Current Business.
For more information, also go to https://globalbusiness.org