What is a Foreign Direct Investment?

A Foreign direct investment, FDI, is when a company in another country builds a plant here in the U.S.  FDI is part of the recent trade talk that seems to have been skipped over by the main stream media. There was an excellent research (Click Here to Read Article) by Gary Cohen, a professor at the University of Maryland, released over this past weekend that we wanted to share with you. With the midterm elections coming up, we have spent so much time talking about tariffs within foreign trade that we have ignored the fact that FDI can cause an impact. From 2001 to 2015 $4 trillion of plant investments have been made in the U.S. by companies domiciled outside of the U.S. Most of the trade talk you hear around the midterm elections is that U.S. companies are selling into China or China is selling into the U.S. and that’s where the tariffs are. Since 2001 that has been an important fact.

Impacts of FDI

From 2001 to 2015, the average wage in those previously stated FDI companies was 24% higher than private sector U.S. companies and the benefits offered were greater. Those companies are also superb in technology causing U.S. manufacturing, as a whole, to raise the technological bar. Also, during the 2001 to 2015 time period, there was a 68% increase in orders placed by with smaller to mid-sized companies. The point is, when you hear conversations around the mid-term elections, know that it’s not just about the tariffs from selling to other countries and vice versa. We can’t get too defensive in the tariff talk because we don’t want the foreign direct investments coming into the U.S. to slow down. If you look in the state of Alabama, back in the mid 1990’s, a stream of successful foreign manufactures came into the state. From Mobile to Huntsville you can see the landscape has transformed drastically due to the opening of these plants. You can’t go through any large city without seeing a large foreign manufacturer dominating it. They bring employment and competitive wages which causes those surrounding cities to benefit largely.

 

Ashley Page, JD, MBA
Senior Vice President
Wealth Consultant
Email Ashley Page here

 

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