US needs to remain open for business
The way to keep doing that is by being a magnet for inward investments
durable. FDI fell in the early 2000s, and drifted lower during the Great Recession.
It would be nice to see this volatile performance replaced with a clearer upward trend. To do so, the US should make attracting more FDI a priority in the years ahead.
Standard approaches to boosting FDI include cutting corporate taxes, building infrastructure and entering into multilateral trade agreements. Certainly, the US should try all of those, initiatives that would be useful for domestic investment as well.
But according to research by economists Bruce Blonigen and Jeremy Piger, those factors are not quite as important as one might think. Instead, Blonigen and Piger find that one of the most important ways to attract FDI is simply to have a big market that is close to other big markets.
Cultural distance
They also find that cultural distance is important — having a common language, for example, facilitates investment. That’s why the UK and Canada are two of the US’s main investors. Regional trade agreements, like the North American Free Trade Agreement, are also useful. So in order to attract FDI and give more Americans good jobs, the US government needs to ensure that it remains a big market that is culturally in sync with other countries. Among other things, that means encouraging immigration.
The US already gets lots of investment from rich countries, but it needs more from China and India, and the best way to do that is to bring more residents of those countries to the US.
Finally, the US should go to great lengths to keep all signs of xenophobia in check. Trump’s combative rhetoric, combined with seemingly anti-immigrant moves, risks creating the impression of a country that wants to shut itself off to the world.
Already, tourism to the US has taken a noticeable hit. If FDI were also to drop, it would be bad news for American workers in Kentucky, Tennessee and many other places that depend on investment from overseas. If Trump really wants to win in the global economy, he needs to do everything he can to keep those investment dollars flowing.