Updated January 4, 2021
Foreign Direct Investment: Overview and Issues
Overview
For U.S. multinational firms (combined U.S. parent
The growing prominence of foreign direct investment (FDI)
companies and foreign affiliates), activities of the U.S
raises questions about its costs and benefits to the U.S.
parent companies accounted for more than two-thirds of
economy. Traditionally, the United States has supported a
world-wide value added, capital expenditures, and research
rules-based and open investment environment
and development.
internationally in order to promote economic growth and
Figure 1. U.S. Outward and Inward FDI Position, at
advance other policy objectives. U.S. investment policy
Market Value, 2019
includes negotiating rules, disciplines, and market access
commitments concerning FDI in trade agreements and
Bilateral Investment Treaties (BITs) and administering
investment promotion programs. It also involves reviewing
certain proposed inbound FDI transactions for U.S. national
security implications. FDI is a part of U.S. trade policy,
given that it is a major driver of trade and plays a role in
facilitating global supply chains.
These policy components have been the subject of
longstanding debate. For some policymakers, foreign
investment expands markets abroad for U.S. firms and

draws in capital and businesses that support local jobs.
Source: Department of Commerce, Bureau of Economic Analysis.
Some policymakers also assert that FDI can advance U.S.
foreign policy and other strategic objectives. Others argue
By geographic area, about 75% of the U.S. direct
that U.S. direct investment abroad (USDIA) may contribute
investment position abroad (cumulative amount) is
to slow growth in U.S. jobs and wages and outsources U.S.
concentrated in high-income developed countries where
jobs. Some policymakers argue that certain foreign direct
consumer tastes are similar to those in the United States:
investment in the United States (FDIUS), particularly by
investments in Europe alone account for 60% of all USFDI,
entities owned or controlled by a foreign government, may
or $3.6 trillion. Similarly, direct investments by European
compromise U.S. national security.
firms account for 64% of the FDIUS position. U.S. firms
have placed a slightly larger share of their investments in
During the Trump Administration, the U.S. investment
Latin America (LA) than in Asia, while Asian firms have
policy landscape experienced notable changes. In response
invested more in the United States than have Latin
to various policy debates, as well as concerns raised by
China’s FDI activity,
American firms. (See Figure 2.)
in 2018, Congress updated laws
governing reviews of foreign investment in the United
Figure 2. Share of U.S. Direct Investment Position
States for national security concerns with the Foreign
Abroad (USDIA) and FDI Position in the United
Investment Risk Review Modernization Act (FIRRMA,
States (FDIUS) by Region, Historical Cost, 2019
P.L. 115-232). It also consolidated and expanded U.S.
authorities to support private investment overseas for
foreign policy and strategic economic aims, with the Better
Utilization of Investments Leading to Development Act
(BUILD Act, P.L. 115-254). Other developments included
the enactment of legislation to implement the U.S.-Mexico-
Canada Agreement (USMCA, P.L. 116-113), which
contained investor protections that varied in key respects
from existing U.S. trade agreements.
FDI Trends and Recent Investments
With $8.8 trillion in total USDIA, and $10.5 trillion in total

FDIUS in 2019—at market value—the United States is the
Source: Department of Commerce, Bureau of Economic Analysis.
world’s largest source and recipient of FDI.
By sector, USDIA is concentrated in high technology,
During 2005 through 2019, USDIA more than tripled, and
finance, and services industries located in highly developed
FDIUS more than doubled (Figure 1), but both levels are
countries with advanced infrastructure and communications
expected to dip in 2020 amid the Coronavirus Disease 2019
systems. The largest share of FDIUS (40%) is in the U.S.
(COVID-19) pandemic.
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Foreign Direct Investment: Overview and Issues
manufacturing sector, primarily in chemicals and other
thirds Senate approval and FTAs require approval by both
manufacturing.
Chambers to enter into force in the United States.
Issues for Congress
Congress sets U.S. investment negotiating objectives, most
recently in the 2015 Trade Promotion Authority (TPA)
Foreign Investment and Outsourcing
(P.L. 114-26), which expires on July 1, 2021. These
For some observers, USDIA contributes to slow growth in
negotiating objectives seek to reduce or eliminate foreign
jobs and wages in the U.S. economy because U.S. firms are
investment barriers and ensure that foreign investors do not
seen as outsourcing jobs, particularly manufacturing jobs,
receive “greater substantive rights” for investment
to lower wage countries. There are examples of U.S. firms
protections than U.S. investors domestically. The USMCA
closing a U.S. plant and opening a similar plant abroad, but
contains the most recent set of U.S. investment
there are no official sources that track such activities. Most
commitments. It limits some core investor protections,
USFDI, however, is in developed economies that are
including eliminating ISDS with Canada, and curtailing
similar to the United States and most of this production by
ISDS use with Mexico.
foreign affiliates is consumed where it is produced and is
part of accessing markets abroad. Foreign affiliates on
Congress may revisit U.S. investment policy objectives in a
average sell most of their output in the foreign country in
potential debate over TPA renewal, as well as in shaping
which they are located or to neighboring countries; about
and overseeing potential future FTA or BIT negotiations.
10% of foreign affiliate sales is to their U.S. parent
Congress also may examine investor protection issues with
companies. Economists generally attribute the loss of U.S.
respect to emerging markets, given that the most recent
manufacturing jobs to broader factors, including economic
U.S. BIT talks with China and India stalled. Another
recessions (1999-2000, and 2008-2009) and improvements
potential issue is the possible need for multilateral
in productivity (automation and other advances in
investment rules, such as in the WTO and the potential EU-
technology) that have allowed the manufacturing sector to
China investment agreement under negotiation.
produce more goods with fewer workers.
Investment Promotion Programs
Foreign Investment and National Security
The U.S. International Development Finance Corporation
Some foreign investment, particularly by firms that are
(DFC), a new, consolidated U.S. government agency
owned or controlled by a foreign government (state-owned
authorized by the BUILD Act, promotes private investment
enterprises, or SOEs), raise concerns about U.S. national
in developing countries to support U.S. global development,
security. Such national security-related issues are reviewed
foreign policy, and economic interests. It provides political
by the Committee on Foreign Investment in the United
risk insurance, financing, direct equity investments, and
States (CFIUS), an interagency committee that serves the
technical assistance. As the successor to the Overseas
President. The Committee reviews foreign investment
Private Investment Corporation (OPIC, now terminated),
transactions to determine if: (1) they threaten to impair U.S.
the DFC followed longstanding debate about the role of the
national security; (2) the foreign investor is controlled by a
U.S. government in trade promotion, and outsourcing
foreign government; or (3) the transaction could affect
concerns. Congress may examine the DFC’s effectiveness
homeland security or would result in control of any critical
in supporting U.S. commercial and broader strategic
infrastructure that could impair national security. Presidents
interests, including the extent to which DFC-supported
have used this authority to block at least six transactions.
projects allow U.S. firms to gain critical footholds in
overseas markets.
Some policymakers argue that the rise of SOEs and other
factors require a more proactive approach that reviews
SelectUSA, a Department of Commerce program
foreign investments holistically, rather than on a case-by-
established by a 2011 executive order, aims to coordinate
case basis. FIRRMA aimed to address these and other
federal efforts to attract and retain investment in the United
concerns by expanding the ability of CFIUS to review
States, complementing state-level investment attraction
transactions, including non-controlling investments, some
efforts. It provides information on investment, and aims to
real estate transactions, and acquisitions that involve critical
help resolve investment issues involving federal programs
technologies, critical infrastructure, and personal data.
and activities and to advocate for FDI in the United States.
Codification of authorization could affirm U.S. interest in
U.S. International Investment Agreements
competing for FDI; yet, overlap concerns may arise due to
While some World Trade Organization (WTO) agreements
existing sub-federal investment attraction programs.
address investment issues in a limited manner, investment
Outlook
provisions in bilateral investment treaties (BITs) and
U.S. investment policy may evolve under a Biden
bilateral and regional free trade agreements (FTAs) serve as
Administration. The 117th Congress could examine the
the primary tools for establishing investment rules
impacts of FDI on the U.S. economy and jobs, including the
internationally. The United States is party to BITs or FTAs
effects of the pandemic, additional potential changes to
with investment chapters with over 50 countries. These
CFIUS, U.S. investment policy objectives and
agreements generally aim to reduce FDI restrictions and
commitments in FTAs and BITs, and the effectiveness of
ensure nondiscriminatory treatment of investors and
investment promotion programs.
investment, subject to national security and other
exceptions, while balancing other policy interests. They
Shayerah I. Akhtar, Specialist in International Trade and
typically are enforced through binding arbitration under
Finance
investor-state dispute settlement (ISDS). BITs require two-
James K. Jackson, Specialist in International Trade and
Finance
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Foreign Direct Investment: Overview and Issues

IF10636


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https://crsreports.congress.gov | IF10636 · VERSION 4 · UPDATED

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