How Foreign Investment Benefits the American Economy

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Foreign companies have quietly become one of America’s biggest job creators. From Toyota factories in Kentucky to German chemical plants in Louisiana, international businesses employ 8.4 million Americans and pump over $5 trillion into the U.S. economy.

This investment shapes everything from the cars Americans drive to the medicines they take.

What Counts as Foreign Investment

Foreign direct investment means more than money crossing borders. When a German automaker builds a factory in South Carolina or a Japanese tech company opens a research lab in California, they’re making a long-term commitment that brings capital, technology, and expertise to American communities.

The key difference lies in control. Foreign direct investment requires owning at least 10% of a U.S. business, giving the foreign company real influence over how it operates. This separates it from portfolio investment, where someone might buy stocks on an exchange but have no say in running the company.

Active vs. Passive Investment

The U.S. Bureau of Economic Analysis tracks these investments through mandatory surveys of foreign-owned companies. A U.S. business counts as a foreign affiliate when a single foreign entity owns at least 10% of voting shares.

That 10% threshold is just a statistical benchmark, though. In practice, even smaller ownership stakes can provide effective control in widely-held companies. This matters for agencies like the Committee on Foreign Investment in the United States, which reviews deals for national security risks based on actual influence rather than precise ownership percentages.

How Foreign Companies Invest

Foreign investment takes several forms, each with different impacts on American workers and communities.

Building from Scratch

Greenfield investments create entirely new facilities where none existed before. When Norway’s NorSun announced plans to invest $620 million in a silicon wafer plant in Tulsa, Oklahoma, it promised to create 320 new jobs in an industry that barely existed in the state.

These projects often generate the most excitement because they represent pure job creation. Every position is new, from factory workers to engineers to support staff.

Buying Existing Companies

Mergers and acquisitions represent the most common form of foreign investment in America. Rather than building from scratch, foreign companies purchase existing U.S. businesses or merge their operations with American firms.

While this doesn’t create new facilities immediately, it injects foreign capital, technology, and management expertise into existing operations. These investments often lead to expansion and modernization that wouldn’t have happened otherwise.

Reviving Idle Facilities

Brownfield investments involve foreign companies purchasing or leasing existing production facilities that have been shuttered or underused. This approach can revitalize industrial areas by bringing new life to dormant factories.

Expanding Operations

Foreign companies already operating in the U.S. frequently reinvest in their American operations. These expansions—adding new product lines, increasing production capacity, or upgrading equipment—signal long-term confidence in the U.S. market.

Why Companies Invest Abroad

Understanding why foreign firms choose to invest in America helps explain what kinds of impact they’re likely to have.

Serving Local Markets

Horizontal investment involves companies duplicating their home operations to serve the American market directly. A German automaker building cars in South Carolina avoids shipping costs and tariffs while getting closer to customers.

Securing Supply Chains

Vertical investment connects different stages of a company’s global operations. Backward vertical investment secures inputs—like a computer company building a chip plant to supply its assembly lines. Forward vertical investment gets companies closer to customers or controls distribution channels.

Diversifying Assets

Conglomerate investment involves companies entering completely unrelated businesses. A foreign manufacturer might purchase an American hotel chain to diversify its portfolio, though this type of investment is less common because it requires mastering both a new country and a new industry simultaneously.

America’s Investment Magnet

The United States attracts more foreign direct investment than any other country. At the end of 2023, the total stock of foreign investment reached $5.39 trillion, up $227 billion from the previous year.

This represents 26% of all foreign investment worldwide, though that share has slipped slightly from 27% in 2003 as other countries become more competitive destinations.

America’s Advantages

Several factors make the U.S. attractive to foreign investors: a massive consumer market, skilled workforce, transparent regulations, and world-class universities. These advantages aren’t guaranteed, though—maintaining investment leadership requires continuous effort to preserve an attractive business climate.

Where the Money Comes From

Looking at investment sources requires examining two different measures: immediate foreign parents and ultimate beneficial owners.

Many multinational corporations structure investments through intermediary countries like the Netherlands or Luxembourg to take advantage of favorable tax treaties. A Japanese company might own a Dutch subsidiary that in turn owns the U.S. operation. On paper, the investment appears Dutch, but the real economic relationship is with Japan.

Top Investing Countries (2023)

Source: U.S. Bureau of Economic Analysis

These figures reveal America’s closest economic partners. While countries like the Netherlands appear as major investors in some statistics, they often serve as financial conduits rather than the true source of investment capital.

Where Investment Goes

Foreign money flows into every sector of the U.S. economy, but manufacturing dominates. In 2023, manufacturing accounted for 41.2% of total foreign investment stock, worth $2.22 trillion.

Within manufacturing, chemicals—including pharmaceuticals—leads with $767 billion in cumulative investment. Other major sectors include finance and insurance (10.6%), wholesale trade (10.0%), information, real estate ($210 billion), and retail trade ($199 billion).

Geographic Distribution

California led new investment in 2023 with $12.8 billion, followed by New Jersey ($12.1 billion) and Texas ($10.1 billion). The Southeast region attracted the most greenfield investment at $6.0 billion, reflecting the area’s growing appeal for new manufacturing projects.

Jobs That Pay More

Foreign-owned companies directly employ 8.4 million Americans, representing 6.2% of the entire private workforce. That means more than one in every 20 private-sector jobs comes from a foreign-owned company.

The employment impact extends far beyond direct hiring. Economic research shows that each job at a foreign factory creates an additional 0.5 jobs at domestic companies through supply chain relationships and local spending by workers.

Higher Compensation

Jobs at foreign-owned firms pay better than average. The typical worker at an international company earns approximately $89,000 annually—7% higher than the private sector average.

This wage premium reflects foreign investment’s concentration in high-productivity sectors like advanced manufacturing, technology, and pharmaceuticals. These industries demand skilled workers and can support higher compensation levels.

The pattern holds across time. Earlier research found foreign-owned companies paid wages 25% higher than their domestic counterparts, a trend that has persisted for years.

Regional Powerhouses

Some states have become particularly successful at attracting foreign investment, creating regional economic clusters powered by international capital.

States with Highest Foreign Employment

Source: Global Business Alliance

Manufacturing Concentration

Source: Global Business Alliance

These patterns aren’t accidental. States like South Carolina and Kentucky created virtuous cycles where initial major investments—BMW in Spartanburg, Toyota in Georgetown—built skilled workforces and supply chains that attracted additional foreign and domestic investment.

Innovation Hub

Foreign companies invest more than $80 billion annually in U.S.-based research and development, supporting 261,000 American R&D jobs. This represents 13% of all business R&D performed in the United States.

International firms leverage America’s world-class talent and research institutions while contributing to the nation’s technological leadership in fields like pharmaceuticals, biotechnology, software, and advanced manufacturing.

Knowledge Transfer

Foreign investment creates spillover effects that benefit the broader economy through technology transfer, skills development, and supplier relationships.

When Toyota introduced lean production methods at its U.S. plants, American managers and engineers learned these techniques and spread them throughout the auto industry and beyond. This knowledge transfer improved productivity across entire sectors.

Foreign firms also upgrade their supply chains by providing technical assistance and training to local suppliers. This helps small and medium-sized American companies become more competitive and productive.

Absorptive Capacity

The U.S. maximizes these benefits because of its strong educational system, skilled workforce, and robust research infrastructure. These assets help absorb and spread the knowledge and technology that foreign investment brings.

Countries with weak institutions often struggle to capture these spillover effects. America’s advantage lies in its ability to learn from and build upon foreign expertise.

Market Competition

Foreign companies increase competition in U.S. markets, spurring domestic firms to become more efficient, invest in R&D, and improve their products and services.

This competitive pressure benefits consumers through wider product choices, better quality, and lower prices. When foreign automakers entered the U.S. market, they forced domestic manufacturers to improve quality and introduce new features.

The competitive dynamic works both ways. Foreign companies must adapt their products and services to American tastes and regulatory requirements, often leading to innovations that benefit consumers worldwide.

Manufacturing Revival

Foreign investment has become central to America’s industrial strategy, providing capital and technology needed to keep U.S. manufacturing competitive globally.

Manufacturing receives the largest share of foreign investment, supporting 2.9 million American jobs—22% of all manufacturing employment. Recent years have seen a boom in foreign-backed manufacturing construction, driven by federal policies like the CHIPS and Science Act and Inflation Reduction Act.

Over 40% of “billion-dollar factory” investments announced since 2021 have come from foreign-owned firms. These projects concentrate in strategic sectors crucial for America’s economic and national security.

Key Investment Areas

• Automotive: Electric vehicles and battery production
• Semiconductors: Advanced chip manufacturing
• Clean Energy: Solar panels, wind turbines, energy storage
• Pharmaceuticals: Biotechnology and life sciences

This represents a shift from market-access investments toward strategic reshoring of critical supply chains. The government now actively encourages foreign partners to help rebuild domestic production capacity in essential industries.

Major Projects

Taiwan Semiconductor Manufacturing Company leads with up to $65 billion invested in Arizona chip plants. This project aims to bring cutting-edge semiconductor production onshore, strengthening supply chain resilience for everything from smartphones to defense systems.

Hyundai has announced $21 billion in U.S. investments, including not just vehicle production but also a steel plant in Louisiana to support its automotive supply chain within America.

BMW’s Spartanburg plant in South Carolina exemplifies how single investments can transform regions. The facility has created tens of thousands of jobs while establishing a thriving automotive cluster in the Southeast. It has also made BMW one of America’s largest auto exporters by value.

Export Platform

Foreign-owned companies don’t just serve the American market—they use their U.S. operations to export globally. By leveraging parent companies’ distribution networks and market knowledge, these firms sell American-made goods worldwide.

In 2022, services supplied by foreign affiliates totaled $1.52 trillion. Historical data shows these companies account for approximately 19% of all U.S. goods exports, demonstrating that attracting investment also promotes exports.

This export activity helps improve America’s trade balance while projecting economic strength abroad. Foreign companies often have better access to their home markets than U.S. firms could achieve independently.

Government Investment Strategy

While market forces drive most foreign investment, government at all levels actively competes for international capital through sophisticated promotion efforts.

SelectUSA Leadership

SelectUSA, housed in the Commerce Department, serves as America’s primary investment promotion agency. Created in 2011, it provides a single point of contact for international investors navigating the U.S. market.

The agency offers information on industry clusters, workforce availability, and operating costs while connecting investors with state and local development organizations. It serves as an ombudsman to help businesses navigate federal regulations.

Since inception, SelectUSA has facilitated over $270 billion in client-verified investment projects supporting more than 240,000 U.S. jobs. The annual SelectUSA Investment Summit brings together thousands of investors and development officials from all 50 states and over 100 countries.

Federal Coordination

The Federal Interagency Investment Working Group coordinates more than 20 federal agencies—from Labor to Environmental Protection—to provide seamless investor experiences. SelectUSA maintains strict geographical neutrality, acting as the “front door” to America while letting states and cities make their own cases to investors.

State and Local Competition

Real competition for investment happens at state and local levels. Economic development organizations representing states, counties, cities, and tribal nations actively compete globally for investment projects.

States often offer tax incentives, grants, free land, and infrastructure investments to attract specific projects. This decentralized, competitive approach leverages local expertise while fostering innovation in investment attraction strategies.

Security Oversight

America’s openness to foreign investment isn’t unlimited. The Committee on Foreign Investment in the United States (CFIUS) reviews transactions for national security implications.

Chaired by the Treasury Secretary and including Defense, State, Commerce, Energy, and Homeland Security departments, CFIUS can investigate deals and impose conditions to address security concerns. In extreme cases, it can recommend that the President block transactions entirely.

Recent years have seen intensified scrutiny, particularly of investments from China and Russia and in sensitive sectors like advanced technology, critical infrastructure, and personal data handling. The definition of national security has expanded to include supply chain resilience and technological leadership.

U.S. policy now also addresses outbound investment risks, with measures to prevent American capital and expertise from contributing to sensitive technology development in “countries of concern.”

Economic Debates

Public discussion of foreign investment often reflects broader tensions about globalization, where diffuse long-term benefits can clash with concentrated short-term costs.

Job Displacement Concerns

Critics worry that foreign companies might drive less efficient domestic firms out of business or that American companies investing abroad contribute to job offshoring. The economic evidence is mixed.

Some studies find that outbound investment, particularly to low-wage countries, can substitute for domestic labor in routine tasks. Other research suggests these effects are modest compared to economy-wide factors like automation and technological change.

The net result often isn’t simple job loss but workforce composition shifts away from routine production toward higher-skill roles in R&D, design, and management. While ultimately beneficial for productivity, this transition can create significant hardship for affected workers and communities.

Profit Repatriation

Another concern involves whether foreign companies reinvest U.S. profits domestically or send them home. Companies face a 21% U.S. corporate tax rate plus potential withholding taxes on payments to foreign parents, though tax treaties often reduce these levies.

Foreign firms can shift profits to lower-tax jurisdictions through management fees, intellectual property royalties, or intra-company loans. These practices are legal but can reduce the domestic reinvestment of profits earned in America.

Geopolitical Sensitivity

Investment flows are sensitive to rising geopolitical tensions, trade disputes, and global economic uncertainty. These factors can cause companies to re-evaluate investment strategies, leading to volatility in investment flows and shifts away from countries perceived as risky.

Trade wars, sanctions, and diplomatic tensions can disrupt established investment patterns, affecting not just bilateral relationships but global supply chains and economic development strategies.

Policy Balance

Managing foreign investment requires balancing openness with security, competition with cooperation, and global integration with domestic priorities. American policymakers must navigate these tensions while maintaining the country’s attractiveness to international capital.

The challenge lies in preserving America’s open investment climate while addressing legitimate security concerns and ensuring that investment benefits reach American workers and communities. This balance has become more complex as economic competition intersects with national security considerations.

Success requires coordinated efforts across federal, state, and local governments, along with private sector partnerships that can adapt to changing global conditions while maintaining America’s competitive advantages in the international investment marketplace.

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