The FDI angle

• US manufacturing FDI in 2023 dropped by a third to $42.9bn, the lowest over ten years of comparable data.
• Manufacturing's share of new FDI expenditure also fell to a decade-low of 28.8%.

Why it matters: The sharp decline in manufacturing FDI highlights the gap between initial project announcements and actual capital expenditure. This trend raises concerns about the effectiveness of recent US industrial policy in driving sustained foreign investment.

New FDI in US manufacturing fell to a decade low in 2023, according to official data, because the wave of project announcements that mounted in recent years has yet to fully translate into tangible capital expenditure (capex). 

Foreign manufacturers committed $42.9bn of new investment in 2023, down by about a third from a year earlier and the lowest since 2014, according to figures from the US Bureau of Economic Analysis (BEA), which tracks first-year expenditure commitments by foreign manufacturers.

Manufacturing made up just 28.8% of new FDI first-year expenditure in 2023, which was also the lowest share over the comparable period.

Hype vs reality

BEA figures are based on a survey among investors covering transactions to acquire, establish or expand a US business. 

While subject to revision, they are based on capex plans, as opposed to initial investment intentions. As such, they provide a reality check for the wave of FDI announcements triggered by the likes of the Inflation Reduction Act and Chips and Science Act, which collectively offered more than $400bn in tax credits, loans and grants for companies investing in US cleantech and semiconductor supply chains. Goldman Sachs estimates that IRA incentives alone could reach a total as high as $1.2tn by 2032.

Publicly, foreign producers announced record levels of manufacturing investment in the US in both 2022 and 2023, as shown by figures from fDi Markets. However, BEA data now suggest that these initial investment announcements have yet to translate into tangible capex plans. 

FDI by European investors in particular fell to $27.2bn last year, BEA figures show, down by 43% from a year earlier and just a fraction of the $253.9bn committed in 2015. Europe-based producers accounted for almost two-thirds of new manufacturing FDI in the US in 2023, with the remainder coming mostly from East Asian allies like Japan and South Korea. This pullback by European manufacturers in 2023 is reflected across industries, with a 57% year-on-year decline in new FDI by all Europe-based companies.

“Everyone and their brother”

Advisers to foreign investors in the US say that many companies rushed FDI announcements when these programmes were launched in an attempt to benefit from federal funds, but interest has since dwindled due to tough requirements to gain access to subsidies. 

“The clock was ticking so everyone and their brother was out trying to secure that money, whether they had a solid plan or not,” says Didi Caldwell, CEO of Global Location Strategies and fDi’s Americas columnist. “The money is still available, but the enthusiasm to chase it has waned because companies are realising they still have to have a solid business model.”

Other advisors argue that delays have weighed on FDI. The Chips and Science Act was introduced in July 2021, but was only made law in August 2022. It took another 16 months until the first Chips Act federal grant was approved, for UK-based BAE Systems for its New Hampshire chip facility. 

These delays meant that “companies could not really start serious FDI investments until the rules were finalised”, says Jim Renzas, senior director of North America at BCI Global, a consulting firm. “The government’s inability to act quickly in setting regulations and processing applications is the real cause for the dip in FDI.” 

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Other bottlenecks have also contributed to the FDI decline like shortages of US construction workers and available sites, more expensive and less available capital, and worries about a US recession. An FT analysis found that 40% of large manufacturing investments announced in the first year after these federal policies became law have been delayed or paused. 

European manufacturers holding off on their US investment plans include Italy-based Enel, which has paused its $1bn solar PV cell factory in Oklahoma, according to the FT analysis. Norway’s Nel Hydrogen has also paused its $400m factory to produce electrolysers in Michigan. Swiss solar cell producer Meyer Burger said last week it had put their planned facility in Colorado Springs on hold due to it being “no longer financially viable”.

Weakening FDI momentum 

The decline in new manufacturing FDI expenditure reflects a downward trend across industries. The BEA tracked a total of $175.9bn of new FDI in 2023, down by about 40% from a year earlier and the $294bn recorded in 2014, according to BEA figures. Inbound mergers & acquisitions accounted for $136bn in 2023, down by 29% from a year earlier, while greenfield investment declined by 60% to $39.5bn.

While a downward trend was observed last year in other FDI data sources, BEA figures on total new FDI planned expenditure recorded the steepest decline between 2022 and 2023. Greenfield FDI announcements in the US tracked by fDi Markets declined by 26.5% to $124.8bn, while Unctad data on the US’s total FDI inflows decreased by 6.4% to $310.9bn.

An index of the three data sets shows BEA data on total new FDI expenditure plans has lagged behind these other two sources of FDI figures since 2021.

Philip Ludvigson, partner in the international trade group at law firm King & Spalding, says the BEA’s lower projections for FDI expenditure signal “investors are feeling uncertain” due to geopolitical stability, growing global debt levels and risks associated with the US presidential election. 

While manufacturing FDI is falling, overall private investment by both domestic and foreign companies is on the rise. Real private fixed investment in US manufacturing reached an all-time high of $127.1bn in 2023, BEA data shows. Total construction spending on US manufacturing has also soared in recent years, hitting a new record of $235.5bn in June 2024, according to the US Census Bureau.

The US was still the largest destination country for total FDI inflows and greenfield FDI announcements in 2023, according to internationally comparable data published by Unctad and fDi Markets, respectively.

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