Domestic Policy Issues Stemming From U.S. Direct Investment Abroad

Gao ID: ID-78-2 January 17, 1978

Despite the public attention directed at U.S. multinational corporations and their investments abroad, confusion continues to exist about the effects of such investment on the U.S. economy and security. The impact of foreign direct investment has centered around the question of whether foreign investment displaces or enhances U.S. exports. Recent discussion has focused on: technology flows through investment abroad and their impact on U.S. trade competitiveness, host-country demands and incentives that could contribute to reduced U.S. exports, and joint U.S.-foreign ventures and their impact on trade and competition.

Public concern has been expressed about the number of jobs foreign investment either creates or destroys. Available studies have been unable to agree on this issue, but analysts tend to agree that what would have happened in the absence of foreign investment is important in determining the job loss and/or gain from foreign investment. By extending its jurisdiction over domestic business investment abroad in order to protect its interests, the United States has taken actions which have caused and may continue to cause conflicts with host countries. U.S. dependence on foreign raw materials is increasing, making it more vulnerable to sudden shifts in supplies. Transfers of U.S. military technology through coproduction and licensing agreements have economic, political, and security implications. Host-country demands, changes in corporate philosophies, and new and evolving economic and political situations are causing shifts in investment patterns which could affect the U.S. economy and security.

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