The following is a cross-post by Maureen Book, Research Analyst, SelectUSA
With Manufacturing Day fast approaching on October 5, this is a great opportunity to recognize the important role that foreign direct investment (FDI) plays in the U.S. manufacturing sector. Throughout the past 20 years, the manufacturing sector has been the largest recipient of all foreign direct investment in the United States, and as of 2017 it represented nearly 40 percent of the total U.S. FDI position, amounting to $1.6 trillion. This is almost three times the amount of the next largest sector for FDI in the United States: finance.
What types of manufacturing are attracting investment?
Within the manufacturing sector, the chemicals industry is the largest recipient of FDI, reaching $702.7 billion in 2017, or 44 percent of all manufacturing FDI stock, according to the latest data released by the Bureau of Economic Analysis. Diving even deeper, the pharmaceuticals and medicines subsector makes up 74 percent of all chemicals industry FDI, representing nearly $517 billion of investment.
After chemicals and other manufacturing, the transportation equipment industry is the next largest recipient of FDI within the manufacturing sector, attracting approximately $150 billion in investment. The majority of FDI stock in transportation equipment consists of motor vehicles and parts manufacturing (78 percent).
Not only is the chemicals industry the largest sub sector of manufacturing FDI, but it is also the fastest-growing. Over the past five years, the chemicals industry has experienced an average annual growth rate of nearly 24 percent. Though the computers and electronic products subsector captured only $81.9 billion in FDI stock in 2017, it was actually the second fastest-growing segment of manufacturing FDI, with an average annual growth rate of nearly 14 percent over the past five years. Food manufacturing is close behind, growing at an average annual rate of 13 percent.
Where is manufacturing FDI coming from?
Just as the United Kingdom is the largest source of all FDI in the United States, it is also the largest source of manufacturing FDI (by UBO*). In 2017, FDI stock from the UK amounted to nearly $258.7 billion in the manufacturing sector. The second largest source of FDI in U.S. manufacturing was Ireland, with over $224 billion. Rounding out the top five source markets are Germany, Japan, and France.
In terms of the fastest-growing sources of FDI in U.S. manufacturing, foreign investment from China has grown the most since 2012, with an average annual growth rate of 64.5 percent. Following China are Luxembourg, Brazil, Ireland, and Canada.
FDI in U.S. Manufacturing Supports Jobs, R&D, and Exports
In addition to the dollars that foreign firms are investing in the U.S. economy, foreign firms also support the U.S. manufacturing sector through job creation, investment in research and development (R&D), and contributions to U.S. exports. The latest available data shows that in 2015, foreign majority-owned affiliates employed nearly 2.5 million people in the U.S. manufacturing sector. In the same year, foreign firms also spent $39.7 billion on R&D expenditures in U.S. manufacturing and contributed over $201.9 billion towards U.S. exports.
For more information
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