Updated December 7, 2022
Foreign Direct Investment: Background and Issues
Both inward and outward foreign direct investment (FDI)
quadrupled, while FDI into the United States nearly tripled
are significant to the U.S. economy, international trade, and
(not adjusting for inflation). As a share of U.S.
global supply chains, and form a key component of U.S.
multinational enterprise (MNE) activity worldwide, in
trade policy. Traditionally, the United States has supported
2020, U.S. parent companies accounted for 67% of
a rules-based and open investment environment
employment, 74% of value-added, 78% of capital
domestically and internationally to promote U.S. economic
expenditures, and 86% of research and development.
growth and other policy objectives, such as ensuring that
Figure 1. U.S. Direct Investment Position: Market
the United States remains a premier destination for FDI and
Value (Stock), 2005-2021
ensuring the competitiveness of U.S companies overseas.
U.S. investment policy includes negotiating rules and
market access commitments concerning FDI in free trade
agreements (FTAs) and bilateral investment treaties (BITs),
and administering investment promotion programs. At the
same time, the United States maintains a foreign investment
review regime to review a small share of inbound
transactions that may pose a risk to U.S. national security;
many other countries have such policies in place.
What is Foreign Direct Investment (FDI)?
FDI occurs when a resident of one country obtains a lasting
interest in, and a degree of influence over the management, of a
business enterprise in another country (commonly defined as

10% or more of the voting securities or equivalent interest). FDI
Source: CRS with data from the U.S. Bureau of Economic Analysis.
can take the form of the establishment of new operations
(“greenfield investments”), the purchase of existing operations
On a historical-cost basis, most USDIA (stock) was in high-
(mergers and acquisitions, M&As), or the addition of capital to
income countries. By region, Europe is the top U.S.
existing operations. It is distinct from portfolio investment, i.e.,
investment partner, accounting for 61% of U.S. outbound
ownership of stocks, bonds, or other financial assets.
investment and 64% of U.S. inbound FDI (Figure 2). By
sector, in 2021, USDIA was mainly in holding companies
In June 2021, President Biden reflected these policy aims,
(47%); financial services (16%); and manufacturing (14%),
reiterating the U.S. commitment to an open investment
posture to “treat all investors fairly and equitably under the
particularly chemicals. The largest share of U.S. inbound
law” and “maintain a level playing field,” w
FDI (42%) was in manufacturing, again mainly chemicals.
hile
acknowledging that the government would review certain
Figure 2.U.S. Direct Investment Position: Historical-
foreign investments to “protect national security.” In recent
Cost Basis (Stock), 2021
years, Congress has enacted laws affecting U.S. investment
policy, driven by a number of policy concerns, including
the potential security and competiveness risks posed by
China’s investments in the United States and overseas.
There is ongoing debate among various stakeholders about
policies governing foreign investment and certain investor
protections in U.S. trade agreements.
FDI Trends and Recent Investments
Globally, FDI flows rebounded in 2021, surpassing pre-
Coronavirus Disease 2019 (COVID-19) pandemic levels.
Recovery, however, was uneven; developed economies
attracted more FDI than developing economies, and flows

were concentrated in international project finance deals.
Source: CRS with data from the U.S. Bureau of Economic Analysis.
Cross-border M&As were a big driver of U.S. FDI inflows.
Key Debates and Issues for Congress
The United States is the world’s largest source and recipient
At the intersection of many competing interests, U.S.
of direct investment. In 2021, on a market value basis, U.S.
investment policy has been the subject of long-standing
direct investment abroad (USDIA) stock stood at $11.0
debate. According to some policymakers, foreign
trillion, while FDI stock in the United States totaled $14.8
investment allows U.S. firms to expand in global markets,
trillion (Figure 1). From 2005 to 2021, USDIA more than
and attracts capital and businesses to the United States that
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Foreign Direct Investment: Background and Issues
support jobs. Others also assert that FDI can advance U.S.
certain U.S. outbound investment involving “national
foreign policy and other strategic objectives. At the same
critical capabilities” in “countries of concern.”
time, some policymakers argue that U.S. outbound
U.S. International Investment Agreements. As World
investment may offshore U.S. production and jobs. Some
Trade Organization (WTO) agreements address investment
also contend that certain outbound investment and related
in a limited manner, BITs and FTAs provide the primary
technology transfer may not be market-driven and may
tools for establishing investment rules globally. The United
undermine U.S. competiveness. There are also concerns
States is party to BITs or FTAs with investment chapters
that Chinese investment challenges U.S. economic and
with over 50 countries. These agreements aim to reduce
national security interests. Congress could examine several
FDI restrictions and ensure nondiscriminatory treatment of
aspects of U.S. FDI policy, including the effects of FDI on
investors and investment, subject to national security and
the U.S. economy, firms, workers, and U.S. supply chains;
other exceptions, balancing other policy interests—typically
further reforms to foreign investment reviews and whether
enforced through binding arbitration under investor-state
to require greater transparency and oversight of U.S.
dispute settlement (ISDS). BITs require two-thirds Senate
outbound investment; U.S. investment policy objectives and
approval; FTAs require approval by both Chambers to enter
commitments in FTAs and BITs, and new initiatives;
into force. The U.S.-Mexico-Canada Agreement (USMCA)
trading partner FDI policies and trade barriers; and the
contains the most recent set of U.S. investor protections. It
effectiveness of investment promotion programs.
varies in key respects from other U.S. FTAs, notably
limiting recourse to ISDS. See CRS In Focus IF10052.
Foreign Investment and Outsourcing. Some observers
are concerned that U.S. investment abroad contributes to
Congress set U.S. investment policy negotiating objectives
slow growth in jobs and wages in the United States,
most recently in the 2015 Trade Promotion Authority
viewing firms as outsourcing jobs, particularly in
(TPA) (P.L. 114-26), which expired in 2021. Congress may
manufacturing, to lower wage countries. There are
seek to set new objectives as part of potential consideration
examples of U.S. firms closing a U.S. plant and opening
of TPA renewal, or separately. It also may consider investor
one abroad, but there are no official sources that track such
protections in potential future FTA or BIT talks, as well as
activities. Most USDIA, however, is in developed
examine the possible need for multilateral investment rules,
economies that are similar to the United States, and most
such as in the WTO. Additionally, Congress may monitor
production by foreign affiliates is consumed where it is
investment components of new U.S. initiatives, such as the
produced and is part of a strategy to access markets abroad.
U.S.-EU Trade and Technology Council (TTC), which aims
Foreign affiliates on average sell most of their output in the
to promote cooperation on investment screening, and the
country in which they are located or to neighboring
Indo-Pacific Economic Framework for Prosperity (IPEF),
countries; about 13% of foreign affiliate sales was to their
which aims to promote infrastructure and clean energy
U.S. parent companies in 2019 (latest data). Economists
investment, among other objectives.
generally attribute the decline of manufacturing jobs to
Investment Promotion Programs. The U.S. government
broader factors, including economic recessions and
maintains programs both to facilitate U.S. outbound and
improvements in productivity (e.g., technology) that have
inbound FDI. The U.S. International Development Finance
allowed the sector to produce more with fewer workers.
Corporation (DFC) aims to promote private investment in
Foreign Investment and National Security. There is
less-developed countries. DFC’s establishment in law in
growing concern among some policymakers that certain
2018 (P.L. 115-254) was part of the U.S. policy response to
foreign investments by firms that are directed, controlled, or
China’s “One Belt, One Road” initiative. DFC provides
funded by a foreign government, may raise national
financing, political risk insurance, equity, and technical
security concerns. The Committee on Foreign Investment in
assistance for investment projects. In contrast, SelectUSA, a
the United States (CFIUS), an interagency committee that
Department of Commerce program established by a 2011
serves the President, reviews such risks; the President has
executive order, aims to coordinate federal efforts to attract
authority to block or suspend transactions that threaten to
and retain foreign investment, on top of state-level efforts.
impair U.S. national security. In 2018, Congress updated
It provides information on investment, and aims to help
laws governing CFIUS reviews in the Foreign Investment
resolve issues involving federal programs and activities and
Risk Review Modernization Act (FIRRMA, P.L. 115-232),
to advocate for FDI.
as well as export controls. See CRS In Focus IF10177.
Congress may examine DFC’s effectiveness in supporting
Some policymakers argue that the rise of Chinese state-
U.S. commercial and policy interests to expand overseas
directed investments requires a more proactive and strategic
and compete with China. It also may examine whether
approach that considers foreign investments in aggregate
potential codification of SelectUSA would affirm U.S.
terms, instead of on a case-by-case basis. FIRRMA
interest in competing for FDI or raise overlap concerns due
expanded CFIUS’s jurisdiction to review transactions,
to existing sub-federal investment attraction programs.
including non-controlling investments and acquisitions that
Other issues include DFC and SelectUSA’s roles in
involve critical technologies, critical infrastructure, and
facilitating FDI to support critical U.S. supply chains.
sensitive personal data, and some real estate transactions.
Shayerah I. Akhtar, Specialist in International Trade and
Some are concerned that despite recent reforms to CFIUS
certain transactions, particularly in greenfield, emerging
Finance
technologies, and private equity, may evade or fall outside
Cathleen D. Cimino-Isaacs, Specialist in International
current U.S. authorities and review. Revisiting past debates,
Trade and Finance
some pending bills would create a new committee to review
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Foreign Direct Investment: Background and Issues

IF10636
Andres B. Schwarzenberg, Analyst in International Trade
and Finance


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