United States' Federal Reserve Board research finds U.S. outward FDI shifting from China and Hong Kong toward Mexico and India

The United States' Federal Reserve Board published a FEDS Note providing early evidence that geopolitical fragmentation is beginning to reshape U.S. outward foreign direct investment (FDI) and the overseas activities of U.S. multinational enterprises. The analysis finds outward FDI has shifted away from China and Hong Kong and toward Mexico, India, and Vietnam, while advanced manufacturing investment has tilted toward Mexico, the United Kingdom, and major European countries. The note draws on Bureau of Economic Analysis data on U.S. direct investment abroad and on the Activities of U.S. Multinational Enterprises, comparing 2014–2017 with 2022–2023 while setting aside periods affected by Tax Cuts and Jobs Act repatriations and pandemic disruptions. Capital expenditures and employment by majority-owned foreign affiliates show sharp declines in China in 2019 and further decreases in 2022, alongside faster growth in India and Mexico. The analysis flags measurement issues from investment hubs such as Hong Kong and Singapore, but finds that subsidiary-level measures still point to stagnating or slowing U.S. exposure to China, even as R&D by U.S. multinationals in China has trended upward. On reshoring and localization, domestic activity shares show limited broad-based change by 2022, with only tentative signs in high-tech and advanced manufacturing, including a notable post-2019 drop in the foreign-sourcing share of intermediate inputs in computer and electronic product manufacturing.