“You remembered when it used to be, where is the cheapest place to produce? We have flipped that script around. What you really need to think about is, where is the greatest consumer in the world?” US Secretary of Commerce Howard Lutnick said as he delivered the opening speech at the SelectUSA Investment Summit in Washington, DC, last week.
Speaking to an audience made up of international delegations, foreign companies and economic development practitioners, Lutnick and other US Government officials said that labour costs are not the guiding factor they used to be when it comes to foreign direct investment (FDI), particularly as supply chain resiliency and proximity to customers take precedence.
Go deeper with GlobalData
Discover B2B Marketing That Performs
Combine business intelligence and editorial excellence to reach engaged professionals across 36 leading media platforms.
Officials credited President Donald Trump’s administration’s actions – such as passing the Investment Accelerator Act and negotiating trade deals with major investment commitments – as leading the US to record FDI project announcements.
Through all these policies, the message to foreign companies has been consistent: access to the US market is increasingly contingent on investment commitments. This is the intended effect of the tariff regime, with officials reminding delegates that the best way to evade the tariffs is to produce locally. Whether tariffs have actually led to reshoring is a more nuanced picture, but a recent study suggests that their effects have been limited.
The commerce secretary seemed to acknowledge some of the obstacles to investing in the US, such as high costs, labour availability and limits on energy supply, especially as demand from the AI industry squeezes the grid.
“You need power? We will build it for you. You need workers? We will make a deal with the local universities, and we will train them for you,” Lutnick said.
Foreign business leaders with projects in the US backed Lutnick’s claims, with many saying the driving factor for their investments in the US was proximity to customers.
“I think the way manufacturing works today is that you need to have your supply chains close to your consumer. It is important when you manufacture, you should be close to where your markets are,” said Satish Pai, managing director of Indian aluminium and copper manufacturer Hindalco Industries, during a panel with other business leaders. Novelis, a subsidiary of Hindalco, is building a $5bn aluminium recycling and rolling plant in Bay Minette, Alabama.
Pai added that labour skills are also becoming more important than just the cost, particularly as automation and productivity increase.
Lego Systems president Skip Kodak also credited his company’s decision to invest in a $1.5bn (Dkr9.51bn) plant in Virginia to increasing supply chain resiliency, saying “proximity to markets gives us the best opportunity to produce locally”.
Investment flows despite uncertainty
According to Kearny’s 2026 FDI Confidence Index, the US remains the most attractive investment destination for the 14th year in a row. However, the country’s overall score and investor optimism faced a significant decline from last year.
The White House’s investment tracker, which lists US and foreign investments announced since Trump’s second term began, claims the president has secured $10.6tn. US officials often cited these high figures during the Investment Summit, which represents the most important FDI attraction event in the US.
However, the reliability of many of these announcements has been widely scrutinised. Many of the commitments are not legally binding, and the investment pledges attached to the trade deals are economically unrealistic for many of the participating countries.
While the priorities and direction of Trump’s policies have relatively stabilised over the past year, foreign companies are still facing an uncertain business landscape.
Manufacturing costs have risen significantly, as tariffs, the Iran energy shock and a tighter construction labour market drive inflationary pressure. The Institute for Supply Management (ISM) index measuring prices paid for manufacturing inputs reached a four-year high in March, as 17 out of 18 manufacturing sectors reported price increases.
Despite heightened costs, manufacturing has continued to grow, with its biggest expansion since 2022 happening this March. According to the ISM, this expansion can be mostly attributed to a rush in new orders as companies looked to avoid shortages and price hikes from the war in Iran. Prior to the war, manufacturing had been hit hard by sweeping tariffs on imports, which drove up the price of materials like aluminium and copper.
Cautious US entry
Site selector service providers at the Investment Summit also noted that increased manufacturing costs have made companies revisit investment plans but that this varies considerably by company profile and sector.
Tracey Hyatt Bosman, managing director at site selection company Biggins Lacy Shapiro & Company, told Investment Monitor that the varied sources of inflationary pressures are being perceived differently. “I think the [energy shock from the Middle East] is still viewed as fairly short-term, and so not something that would affect their long-term investment strategy. When we talk about the inflationary issues deriving from the tariffs, that is a different situation,” she says.
Site selectors also noted an increase in contract manufacturing as foreign companies that still wish to enter the US market turn to investment avenues that give them more flexibility than a major greenfield commitment would.
“We have also been seeing some companies that maybe have not gone forward with their site selection process just yet but are planning to, and are thinking of the best way to do that. Maybe it is not a full greenfield investment, [but] potentially starting a bit smaller, with just distribution or assembly with plans to scale up to full production. And some […] may also be looking at whether contract manufacturing is a better way to enter the market,” Nicholette Ross, managing consultant at Global Location Strategies, told Investment Monitor.
The site selectors noted that the onslaught of tariffs last year fostered a wait-and-see attitude amongst many companies considering US expansion. As the business landscape continues to be rattled by both short-term and long-term shocks, this sentiment is likely to continue.
