Commentary—

US Investment (And Jobs) Moving Abroad

By Greg Tarpinian

Global multinational corporations, led by US-based multinationals, stepped up the export of capital in the first half of 2004. And for US-based firms, as investment has shifted, so have jobs. As domestic employment by US multinationals has declined, foreign employment has increased. And where, as recently as the late 1990s, the United States and Europe were the largest recipients of foreign direct investment, China and India now lead.

Foreign investment by multinationals accelerated during the first half of 2004. After years of record-breaking increases, that investment slowed dramatically during the 2001 global recession and continued to decline through 2002, but growth has now resumed.

General Motors’ June announcement that it will invest $3 billion in China over the next three years underscores the trend toward greater investment in Asia by US companies. In the first half of this year, GM lost money in Europe and sales slumped in the United States, but sales in China rose 58 percent.

China still plays a relatively small role in GM’s overall operations. The company employs 325,000 workers worldwide, with 11,000 in China. But GM, like many US-based multinationals, will increasingly rely on China to offset low growth and profitability in developed Western markets.

 Although they are shifting operations to Asia, US multinationals in many industries have been slower to move east than their European counterparts. Germany’s Volkswagen already dominates China’s market for motor vehicles.

China and India are now the top destinations for foreign investment, followed by the United States, Thailand, Poland, Czech Republic, Mexico, Malaysia, United Kingdom, Singapore, and South Korea, according to the United Nations. Foreign investment in China rose 11 percent in the first half of this year.

Investment will continue to be concentrated in manufacturing industries such as food and beverages, motor vehicle and other transportation equipment, and electrical and electronic products. Despite the rash of publicity about relocating white-collar jobs, experts believe that foreign investment will remain focused on processing, logistics, and supply.

New data from the US Bureau of Economic Analysis documents trends in the activities of US and foreign companies operating in the United States:

US multinationals employed 30.6 million workers worldwide in 2002. Of those, 22.4 million were employed in the United States and 8.2 million were employed abroad.

The employment of US multinational parent companies accounted for about one-fifth of total US employment in private industries.

Capital expenditures by US multinationals totaled $467.3 billion in 2002. US parent companies accounted for $350.6 billion; majority-owned foreign affiliates accounted for $116.7 billion. Sales by US parent companies totaled $6,483.2 billion; foreign affiliates, $2,656.8 billion.

US affiliates of foreign multinationals employed 5.4 million US workers in 2002, accounting for five percent of total US employment in private industries.

For both US and foreign multinationals, employment decreased for the second consecutive year in 2002. Employment by US multinationals decreased 1.5 percent, following a 3.0 percent decline in 2001.

After years of little change in the share of employment and investment concentrated within the United States, US multinationals are now gradually decreasing that share and shifting more employment and investment abroad. This shift will accelerate as US and European markets continue to slow and become more saturated while Asian markets rapidly expand.

(Greg Tarpinian is the president and executive director of the Labor Research Association, a New York City-based nonprofit research and advocacy organization that provides research and educational services for trade unions.)