Dig Deeper: Trade and Foreign Investment Drive American Manufacturing

Watch “From Textile Town to Ghost Town to Car Town: West Point, Georgia”

For almost every year since the 1970s, the United States has been the top destination in the world for investments like the ones the Kia/​Hyundai group delivered to West Point. The bulk of this FDI comes from traditional allies like Japan, Germany, and South Korea and goes into the US manufacturing sector. Overall, total FDI (“stocks”) in manufacturing hit $2.22 trillion in 2023, about double the amount in 2013.

All this spending is the flipside of the United States’ often-derided trade deficit: Dollars that overseas investors like Kia put into the United States originally came from American purchasers of foreign goods and services. Thus, the US trade deficit is always matched by an equal surplus amount of foreign capital entering the United States, much of which is FDI (Figure 1).

This foreign capital has been shown to deliver big benefits to American companies and workers like those in West Point. In 2021, majority-owned affiliates of foreign multinationals employed 7.9 million Americans and contributed $1.16 trillion to US gross domestic product that same year. These same companies also spend hundreds of billions of dollars per year in the United States on research and development and capital expenditures (machines, equipment, etc.), with the biggest shares again going to manufacturing—much of it in the US Rust Belt and Sunbelt, where major foreign automakers like Kia are located (Figure 2).

Foreign multinationals also improve their US-based operations in other ways, such as by changing management or business practices, implementing proprietary technologies, and linking into new supplier, distribution, and consumer networks. Foreign-nameplate automakers stateside, for example, commonly import core parts and use new innovations from their factories abroad and then export finished vehicles to those and other foreign markets. And Kia is no exception.

These business practices collectively boost US firm performance and employee compensation. Research shows that foreign affiliates in the United States pay more, export more, and are significantly more productive, on average, than similarly situated domestic firms. One recent paper found that these companies pay about 19 percent more than domestic firms on average and that American workers would have been roughly $36 billion poorer in 2015 if domestic firms had magically replaced all foreign affiliates in the United States. Just as important, the study found (as did prior research) that foreign multinationals benefited local communities, companies, and workers too.

But you don’t need to read an economics paper to know that. You can just ask the locals in West Point.

Watch “From Textile Town to Ghost Town to Car Town: West Point, Georgia”