The recent announcement that Japan-based SoftBank plans to invest $50 billion in the United States and create 50,000 jobs is good news for America’s economic competitiveness, and Washington, D.C. policymakers should take note of it. Foreign direct investment (FDI) in the United States is a powerful gauge of how America is faring internationally. When a global company such as Nestle, Toyota, or Siemens invests here, it is a vote of confidence in America’s economic strength that translates to employment for millions of American workers.
But multinational companies have unprecedented options for investment. Unfortunately, during the past 15 years, America’s share of the world’s FDI has shrunk from 37 percent in 2000 to only 22 percent this past year. The United States has forfeited a huge portion of its share in global investment, and our leaders in Washington need to take decisive action to reverse this trend.
That is why pro-growth, pro-investment tax and regulatory reform are critically important under the Trump administration and the new Congress. Given Congressional leaders’ growing resolve to modernize America’s tax system, combined with President-elect Trump’s expressed frustration with overly burdensome regulations, there is reason to believe that policymakers will advance pro-growth policy priorities in the coming months. We strongly urge them to consider the benefits of global investment when they do.
Tax reform is one of the best ways the United States can become more competitive in the global race for FDI. Like the broader U.S. business community, global companies face a complex, burdensome U.S. tax system, with rates that are among the highest in the world. A significant reduction in the U.S. corporate income tax rate, elimination of unnecessary complexity and administrative burden, and a more transparent tax code will provide the certainty that FDI companies need to invest and expand in the United States.
But before the Administration and Congress turn to broader reform, they must strike down harmful regulations that have made the United States even less competitive and created significant uncertainty surrounding businesses’ ability to invest in the United States.
The Treasury Department recently rushed through sweeping changes to Section 385 of the U.S. tax code, unilaterally reclassifying related-party debt into equity, raising the cost of capital, and creating an extremely unpredictable environment for global companies in the United States. The Treasury Department itself admits that FDI will be negatively impacted. Repeal of these misguided regulations would be an expedient way for the Trump Administration to help bolster U.S. competitiveness in the global economy.
To understand why FDI is so important to our economy, look no further than the impact it has on every state across the country. More than 6.4 million American workers earn a paycheck from global companies with U.S. operations. Add the number of jobs supported through locally-sourced supply chains, as well as the effect of these workers spending their paychecks in local communities, and global investment supports more than 24 million American jobs. That is one of every seven private-sector jobs. And these FDI jobs pay 30 percent higher compensation than the economy-wide average.
Roughly 40 percent of America’s FDI flows into the manufacturing sector. Underscoring President-elect Trump’s manufacturing message that resonated in “Rust Belt” states, global investment is a key part of reviving the U.S. economy. A clear takeaway from the election is that American voters – particularly those in states like Michigan, North Carolina, Ohio, Pennsylvania, and Wisconsin – want more and better paying manufacturing jobs. In fact, in the past five years alone, FDI job growth has outpaced these states’ private-sector average, offering pay and benefits that exceed the statewide average.
In Michigan, for example, FDI-sector employment has grown by 56 percent over the past five years, compared to 11 percent growth in the non-FDI private sector. While the statewide average for annual compensation in Michigan is $50,800, the FDI-sector average is more than $80,000, with FDI-supported manufacturing jobs paying an average of more than $86,000.
In Mississippi, Germany-based Continental Tire has begun building a $1.45 billion new manufacturing plant in Clinton that is expected to create 2,500 jobs. In Texas, Korea-based Samsung announced that it plans to invest more than $1 billion in its Austin facility, adding hundreds of new jobs to the 3,000 employees currently working there.
These examples of FDI investment and expansion are valuable to our economy, and we must focus on attracting more of it. By prioritizing the need to keep America competitive for FDI, policymakers should take swift action to ensure that the United States is the best place in the world for foreign companies to invest and create the jobs that America needs.
Nancy McLernon is President and CEO of the Organization for International Investment.