As the world grappled with shortages and soaring prices of energy and food following Russia’s invasion of Ukraine in the spring of 2022, Treasury Secretary Janet Yellen introduced the term “friend-shoring” to describe a new dynamic needed for America’s economic engagement with the world. She called for building and deepening integration among trusted partners to secure supplies of critical raw materials, technologies, and products.
“Let’s do it with countries we know we can count on,” she said in a Washington speech. “Favoring the ‘friend-shoring’ of supply chains to a large number of trusted countries, so we can continue to securely extend market access, will lower the risks to our economy, as well as to our trusted trade partners.”
Yet, when it comes to working with friendly partners seeking to invest in the U.S., Washington’s message has been less than
welcoming. Amid the rise of “America First” economic nationalism, its policies have been inconsistent and muddled, even for companies from the closest allies in Europe and East Asia. Election-year politics have further complicated its stance, casting in doubt the fate of a high-profile pursuit of U.S. Steel by Japan’s top steel maker.
President Biden wants to strengthen American manufacturing. Foreign investors can help speed it up. They have for decades created more jobs, paid higher wages and spent more on factories and equipment than the average U.S. manufacturer. Their spending on research and development has enhanced productivity and accelerated America’s strong innovation.
America’s manufacturing is already starting to benefit as companies from allied nations take up Yellen’s concept and “friend-shore” some of their production to the U.S. Amid growing U.S.-China tensions, South Korea’s LG Energy is building an EV battery plant with Hyundai Motor in Georgia and another with Honda in Ohio, while BMW is adding EV assembly lines to its South Carolina plant. Multi-billion-dollar semiconductor factories are under construction by Samsung in Texas and Taiwan Semiconductor Manufacturing in Arizona.
Yet, after hitting a record $440 billion in 2015, annual flows of foreign direct investment into the U.S. fell sharply — declines economists attribute to technical changes in corporate accounting strategies, as well as a protectionist turn in U.S. trade policy brought by former President Trump.
The pandemic then further lowered inflows. Between 2016 and 2023, the annual value of FDI averaged $256 billion. Investment flows have been helped by Washington’s efforts to bolster green technology and semiconductor manufacturing, but overall fell 28% in 2023 to $145 billion.
With the right set of policies, America can go a long way toward bolstering its domestic economy while strengthening its ties to close allies. To maintain strong alliances, the U.S. must not just talk, but show them it has their back.
