Fdi_and_United_States

FDI and Trading for United States and State of Missouri The purpose of this paper is to highlight foreign direct investment and international trading for the United States and the State of Missouri. We will address who are the main investors in the US and Missouri as well as provide visibility where the US investments overseas. The paper will also look at the trading partners for the United States and Missouri. Keys to economic globalization are trading and investment between countries. Trading consists primarily of imports and exports of goods and services. Investments generally consist of short term and long term debt and equity investments. The common definition of foreign investment as defined by Wikipedia is a measure of foreign ownership of productive assets, such as factories, mines and land. However, in more recent times foreign investment consists more in equity and debt instruments. An increase in foreign investment for an area can indicate strength in a locations economic outlook and an investment in a foreign location can help indicate economic globalization. United States Foreign Direct Investment In 2008, the United States had approximately $4.3 trillion invested in foreign securities which was significantly below 2005-2007 levels. The major source of this decline was from the steep decline of foreign equity securities. On the flip side, foreign investors held approximately $10.3 trillion of United States holdings as of June 2008 per the U.S. Department of the Treasury (Table 1). Although the U.S. foreign investment declined in 2008, both United States and foreign investment in the United States has trended upward significantly over the past 5-10 years especially in the form of equity investments (Figure 1). These are staggering numbers that emphasize the importance of globalization and the importance of foreign markets no matter where your business resides. Table 1 Source: Information obtained from US Department of the Treasury viewed at http://www.treas.gov/tic/fpis.shtml Figure 1 Now let’s consider which countries the United States invests and which countries are the main investors of the United States. See Table 2 for a breakdown of the top 12 countries. Approximately 74% of the United States $4.3 trillion investment abroad is with twelve countries. Similarly 71% of the $10.3 trillion invested in the United States is from twelve countries. The countries that the United States has the most invested are United Kingdom, Japan and Canada with 15%, 10% and 9% of the total investment in the United States, respectively. Japan, China and United Kingdom are the top three investing countries in the United States with 12%, 12% and 8% of the $10.3 trillion invested in the United States, respectively. When comparing outward, United States investments and incoming investments in the United States it is interesting to note the difference in the makeup of the type of investments. The United States invests more in equity of foreign companies where the opposite is true of foreign investments in the United States. Approximately 64% of the United States investments are in Equity while foreign investments in the United States consist of only 29% equity instruments. The heavy concentration of equity investments has significantly impacted the United States market value of foreign holdings. With a high percentage of holdings in equity investments, changes in equity prices will strongly impact the value of the United States holdings. The United States investments in foreign markets have grown slower than foreign investment in the United States. This can be evidenced from Table 3 which shows the ratio of United States holdings of foreign long term securities to long term foreign investments in the United States. Since March 1994 to December 2008, the ratio of U.S. foreign holdings to foreign holdings in the United States has gone from 0.74 to 0.47. This decline can be from the decrease in equity prices and the improvement in the economies of foreign countries over the past 15 years. The last comparison we would like to make between United States holdings and foreign holdings is the in the industries that are invested. Table 4 highlights the differences in where the funds are invested between the United States and foreign investors. The two items that jump out are the government and the financial sectors. First, the financial sector is clearly the leading industry for investment for both, with 29% of United States investment in foreign holdings in financial industry and an even high 38% of foreign investments in the United States in the financial industry. Foreigners are also heavily invested (30% of total foreign investment) in the United States government, which consist of securities issued by local governments as well as government sponsored or guaranteed corporations, while the United States has only 9% of its total foreign investments in foreign governments or government backed securities. Table 2 Source: Information obtained from US Department of the Treasury, http://www.treas.gov/tic/fpis.shtml Table 3 Market value of U.S. holdings of foreign long-term securities and foreign holdings of U.S. long-term securities, selected dates, 1994-2008 Source: US Department of the Treasury, http://www.treas.gov/tic/fpis.shtml Table 4 Source: Information gathered from US Department of the Treasury, http://www.treas.gov/tic/fpis.shtml State of U.S. International Trading In 2008 the United States ranked as the third largest exporter of goods and the largest exporter of services based on World Trade Organization (WTO) October 2009 reports. They also reported the United States as the largest importer of both goods and services. According to WTO October 2009 reports the United States exported $1,287 billion in goods and $521 billion in services in 2008. They imported $2,169 billion in goods and $368 billion in services. The consistent excess of imports over exports has lead to the large trade deficit being experience by the United States. Figure 2 U.S. Exports Touch 230 Countries Across the Globe Source: Graph viewed at U.S. Department of Commerce, International Trade Administration Over 80% of the United States imports and exports of merchandise are with 30 trading partners. Table 5 shows the breakdown of the top 30 countries. Canada and Mexico make up the largest portion of United States exports making up 20% and 12%, respectively. The globalization of American companies is evidenced by the mere number of companies that export goods. The United States Department of Commerce International Trade Commission reported that over 250,000 companies exported goods during 2007. Canada, China and Mexico make up the largest portion of United States imports with 16%, 16% and 10% respectively. Outside of the services industry, the leading merchandise industry participating in international trade within the United States is primarily manufacturing making up over 80% of the total exports and over 70% of total imports. Figure 3 2008 United States Merchandise Imports by Industry 2008 United States Merchandise Exports by Industry Source: Graph obtained from U.S. Department of Commerce, International Trade Administration Table 5 Missouri Foreign Direct Investment Foreign investment in the United States is concentrated in several different regions. According to the Missouri Department of Economic Development, since 2003 Missouri has received 25 foreign direct investments totaling over $3 billion of which 48% is with manufacturing companies. Eighty percent of the foreign investment in Missouri is from Switzerland, Germany, United Kingdom and Canada. Switzerland and Germany each contribute 24% of the total. Missouri has benefited in the creation of 6,275 jobs as a result of the foreign investments since 2003. Source: Graph obtained from Global MarketPlace International Trade & Investment in Missouri, Missouri Department of Economic Development, Missouri Economic Research and Information Center 2009, p.6 Missouri Trading Partners With United States being one of the top three exporters of goods and the top exporter of services in the world, Missouri is in a great position to contribute. In 2008 Missouri ranked number 26 in the United States in exports with $10.462 million (Foreign Trade Division of the U.S. Census Bureau). Since 2004 transportation equipment and chemicals have been the leading manufacturing exports in Missouri. In 2008 a total of 197 countries in the world have benefited from Missouri exports with Canada being the primary beneficiary according to the Missouri Economic Research and Information Center. Source: Map obtained from U.S. Trade Overview, Last Updated July 15, 2009, United States Department of Commerce, International Trade Association, p.8 Source: Chart obtained from MarketPlace International Trade & Investment in Missouri, Missouri Department of Economic Development, Missouri Economic Research and Information Center 2009, p.2 Source: Global MarketPlace International Trade & Investment in Missouri, Missouri Department of Economic Development, Missouri Economic Research and Information Center 2009, p.5 Missouri Outlook The future for foreign investment in Missouri is bright. Over the past few years the St. Louis region has been attempting to make St. Louis the United States hub for China trade. In March of 2008, Governor Matt Blunt signed an agreement with the Investment Promotion Agency and the Trade Development Bureau, on behalf of the Ministry of Commerce. This agreement could lead to positioning St. Louis as a new transportation hub for trade with China and increase exports between Missouri and China. Due to the potential increase in trade and regional economic growth the competition for an international trade hub is strong. St. Louis is well positioned with two airports, a collection of trucking hubs, central United States proximity, solid rail system, and the Mississippi river. There are two challenges that St. Louis will need to address in order to win the China hub 1) convince China that St. Louis has the infrastructure to support a transportation hub and 2) convince United States manufacturers that St. Louis is the proper location to ship goods to China. If St. Louis is able to secure this relationship with Chinese businesses, the benefits can be tremendous. Conclusion Foreign direct investment and international trade are critical for economic globalization. This paper highlighted several key measures for trade and foreign direct investment for the United States and Missouri. Foreign direct investment and trade are strong and should increase as globalization continues. It will continue to increase as additional developed economies invest in less developed countries and as trade barriers decrease. In order to continue to advance their economies the United States and Missouri must continue to participate in world trade and investment and continue to look for additional methods to participate in economic globalization. Sources: Foreign Portfolio Holdings of U.S. Securities, as of June 30, 2008, US Department of the Treasury, viewed on January 3, 2010 at http://www.treas.gov/tic/shla2008r.pdf U.S. Portfolio Holdings of Foreign.Securities, as of December 31, 2008, US Department of the Treasury, viewed on January 3, 2010 at http://www.treas.gov/tic/shc2008r.pdf U.S. Trade Overview, Last Updated July 15, 2009, United States Department of Commerce, International Trade Association, viewed on January 5, 2010 at http://ita.doc.gov/td/industry/otea/US_Trade_Overview.pdf Gov. Blunt, China's Investment Promotion Agency and Trade Development Bureau Sign Agreement to Promote Missouri Trade, RCGA St. Louis Regional Chamber and Growth Association, March 26, 2008, viewed on December 30, 2010 at http://www.stlrcga.org/x3156.xml "China Hub" effort makes progress, December 14, 2009, stltoday.com, viewed on December 30, 2010 at http://www.stltoday.com/stltoday/news/stories.nsf/editorialcommentary/story/E9DF143FA47F64B88625768A00013E38'OpenDocument Global MarketPlace International Trade & Investment in Missouri, Missouri Department of Economic Development, Missouri Economic Research and Information Center 2009 viewed at on January 8, 2010 at http://www.missourieconomy.org/pdfs/global_market_0313.pdf Top U.S. Trade Partners, 2008, U.S. Department of Commerce, Census Bureau, Foreign Trade Division, viewed on January 9, 2010 http://ita.doc.gov/td/industry/otea/ttp/Top_Trade_Partners.pdf United States Trade Profile, October 2009, World Trade Organization, viewed on January 10, 2010 at http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx'Language=E&Country=US