The International Trade Council is observing a notable trend in foreign investment within the U.S. manufacturing sector, raising questions about potential impacts stemming from economic policies, including those of the Biden administration. Recent data highlights an increase in construction spending for manufacturing facilities in the United States, with real manufacturing construction witnessing a doubling since the end of 2021 according to the Treasury's 2023 report.
This increase in foreign investment takes on an international perspective, as foreign direct investment (FDI) contributes to expanding manufacturing capacity within the United States. The International Trade Council has undertaken a thorough examination of this trend, exploring its international implications and the role that foreign investors play in establishing new manufacturing operations on U.S. soil.
The surge in foreign investment indicates potential growth prospects for the U.S. manufacturing sector. Analysts have noted a possible correlation between this upswing and the economic agenda set forth by President Biden, often referred to as "Investing in America" (IIA). This comprehensive initiative aims to rejuvenate the American manufacturing sector, with key legislative accomplishments including the Bipartisan Infrastructure Law, CHIPS and Science Act, and Inflation Reduction Act.
When compared to similar indicators in other advanced economies like Germany, Japan, Australia, and the United Kingdom, the magnitude and pace of America's manufacturing construction growth underscore the potential influence of the IIA (see Figure 1, Treasury 2023).
Foreign investors are contributing to the expansion of U.S. manufacturing construction, notably enhancing capacity. The Bureau of Economic Analysis’s Survey of New Foreign Direct Investment (FDI) in the United States points to transactions that increase capacity through new establishments and the construction of new facilities by existing U.S. affiliates of foreign-owned firms. The survey highlights the involvement of investors from key trading partners, including European countries, Canada, Japan, Singapore, South Korea, and the United Kingdom. This illustrates the increasing international interest in U.S. manufacturing.
In 2022, FDI in new U.S. manufacturing capacity surged by 247%, reaching $5.3 billion. This growth trend represents a significant reversal from a multi-year downward trajectory, surpassing the pre-pandemic average by nearly double. Both new establishments and expansions of existing affiliates played substantial roles in this increase, indicating a potential shift in manufacturing FDI.
An intriguing observation is the concentration of foreign direct investments. Manufacturing claimed a 66% share of total 2022 new FDI (see Figure 3). This concentration diverges from past trends, where manufacturing's share averaged less than one third from 2014 to 2021. Notably, investments in computer and electronic products, which includes semiconductor manufacturing, emerged prominently, signifying growth in this capacity-expanding sector.
The International Trade Council acknowledges the potential impacts of these foreign investments on revitalizing the U.S. manufacturing sector and fostering broader economic growth. These investments offer more than financial contributions, potentially involving the transfer of technological knowledge and innovative management practices. Initiatives like the Department of Commerce’s SelectUSA, aimed at presenting the United States as an appealing business market, could further shape these trends.