FOREIGN DIRECT-INVESTMENT AND THE DEMAND FOR PROTECTION IN THE UNITED-STATES

Over the past decade, foreign direct investment (FDI) in the United St ates has grown dramatically, changing the composition of many U.S. ind ustries and bringing foreign-owned firms into the domestic political p rocess. Presumably, FDI also has affected the politics of protection, by both altering the domestic coalitions around protectionist demands and shifting the potential benefits that protectionism is likely to br ing. To understand this process, we create and test a model that exami nes the level of inward investment and the extent to which this invest ment either complements or substitutes for existing import levels. Imp ort-complementing investment, we suggest, will cause a split in protec tionist demands, with local producers favoring protectionism and forei gn investors pushing for free trade. Import-substituting investment, b y contrast, will create convergent interests between local and foreign producers. In both cases, inward FDI reshuffles traditional alliances and demands for protection, challenging many prevailing views about p rotectionism in the United States.