Trade Protection and Foreign Direct Investment in the U.S.

Abstract

The rising wave of foreign direct investments in the United States arose primarily from the desire and need of European and Japanese firms to match the global perspective and operations of American multinationals. Increasingly, however, foreign direct investments—especially many recent Japanese ones—are the result of U.S. trade protection or the threat thereof. By providing domestic jobs, foreign direct investments tend to reduce or defuse the threat of protectionism. Specific industry data in the U.S. color television, automobile, and steel industries clearly indicate that a major force stimulating foreign direct investments, especially Japanese ones, in the United States during the 1970s and 1980s was the escalation of U.S. protectionism in these industries. Other major industries, such as food and chemicals, which are much less affected by U.S. protectionism, have received foreign direct investments primarily as the result of the globalization process that has been taking place throughout the world.