April 1, 2022
Foreign direct investment, infrastructure, and supply chain resiliency: A new nexus for US industrial strategy
Introduction
The United States’ aging infrastructure is currently unable to support the kind of economic growth and productivity it needs to successfully compete with other advanced and emerging economies. This includes the present state of nontraditional infrastructure, such as the semiconductor industry; and recent shortages have highlighted US dependency on foreign producers. Inbound FDI stock in the United States has grown over the past decade, but the rate of FDI inflows has slowed down over the last five years: a decline of 71 percent between 2015 and 2020—while annual FDI inflows into competitors such as China have increased by 20 percent.
Targeting key areas
Infrastructure spending should not only mean investing in roads, ports, and electricity grids. Rather, it should also incentivize inbound FDI in sectors that are critical for the US economy: large capacity batteries, semiconductors, and smart and green infrastructure. The global competition for FDI is increasing, and the United States needs to adapt swiftly to the changing FDI marketplace if it is to remain the largest recipient of FDI in the world. This includes encouraging US outbound FDI in sectors and countries that are of strategic importance for the United States. They provide metals and materials essential for ensuring the efficiency of US manufacturing and supply chain resilience.
The solution
The well-being of the US economy depends heavily on immediate and massive investments in the US infrastructure. Therefore, promoting FDI both domestically and internationally must play a key role in the United States’ infrastructure and supply chain resilience strategy. It would in turn increase the productivity, efficiency, and competitiveness of the US economy, contributing to its sustained appeal as a leading FDI destination in the second quarter of the twenty-first century. The recent $1 trillion infrastructure law is a step in the right direction, but the government should also spur private investments in US infrastructure, both domestic and FDI, through various incentive programs.
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Image: Waste coal is loaded into a truck at an Abandoned Mine Land reclamation site in Clinchco, western Virginia, U.S., May 12, 2021. Picture taken May 12, 2021. REUTERS/Dane Rhys.