Japan is one of the top countries in foreign direct investment flow to the United States. Japan invested $33.8 billion in 2014, the second largest amount after the Netherlands. On a cumulative basis, Japanese investment reached $342 billion in 2013 and ranked second, only after the United Kingdom.
The term “trade war” has become a thing of the past, as Japan now strikes a good balance between trade and investment to the United States (Chart 1). This is a result of the significant efforts made by Japanese companies over the past few decades to optimize the location of their production and operations bases. Many “Japanese” products that are used by American consumers and businesses are now designed and produced in this country.
Indeed, Japan is the second largest creator of jobs supported by direct investment in the US, again after the United Kingdom. In 2012, Japanese MNEs (majority-owned bank and nonbank US affiliates) supported 719,000 jobs in the United States. In addition, Chart 2 indicates that Japanese MNEs support a relatively large amount of employment compared to the size of investment.
Japanese MNEs appear to have the ability to withstand difficult situations. For example, during the Global Financial Crisis, total private employment in the US shrank by more than 7% and foreign MNEs also had to cut their workers significantly, but the decline in employment by Japanese MNEs was relatively modest. In addition, average compensation per worker by Japanese MNEs kept growing even during the peak of the crisis (Chart 3).
A strong commitment by Japanese MNEs to operate in this country is also reflected by their rapidly increasing research and development (R&D) spending. R&D spending creates high paying, high-skilled jobs for US workers and increases innovation in the US economy.
As for industrial composition of employment by MNEs, Japan is the champion in manufacturing employment among all countries, supporting 326,000 jobs. It is also increasing, and the transportation equipment sector alone added almost 20,000 jobs between 2010 and 2012. Such development coincides with the Administration’s goal of strengthening the manufacturing sector in America.
In addition, regional data shows that Japanese MNEs support employment in many US states. California ranks at the top, followed by Ohio. In some states, Japanese MNEs hold a dominant position over MNEs from other countries. In Hawai‘i, for example, Japanese MNEs support 46% of employment by all foreign MNEs. The ratio is 35% in Kentucky. Meanwhile, Indiana was the winner in employment creation by Japanese MNEs in 2010-12, followed by Illinois.
Finally, company-based data show that many Japanese corporations are supporting several thousand jobs at each site. Some companies are supporting over 1,000 employees in towns with populations of only one to three thousand -- in states like Ohio, Indiana, and Alabama -- indicating that Japanese MNEs are providing great employment opportunities in many regional US cities.
Tadashi Yokoyama is Economic Counselor at the Embassy of Japan in Washington, D.C. Data sources for charts include US Bureau of Economic Analysis, US Census Bureau, US Bureau of Labor Statistics, and Dun & Bradstreet.