Blue States Losing Out on Foreign Investment | The American Spectator

Everybody knows about the continuing migration from Democrat-run states like California, Illinois, and New York to low tax, less regulated Republican states like Florida, Tennessee, and Texas. But as much as this outflow of disgruntled citizenry will seriously impair the future prosperity of the blue regions being left behind, it will not be their biggest financial loss.

As a result of President Trump’s tariff negotiations, a growing number of countries have pledged massive investments in the United States over the next decade. Two trillion dollars alone will come from the Middle East with $1.4 trillion pledged by the UAE and the balance by Saudi Arabia. Japan says it will expand its American manufacturing capacity by $550 billion, while the European Union will finance $600 billion in new facilities beyond the $750 billion it has also promised to pay for American natural gas.

At the same time, major domestic companies like GE Appliances, IBM, Nvidia, and Eli Lilly have agreed to pull back on making their products in foreign countries and instead build state-of-the-art factories in the United States. Apple alone is committed to spending $600 billion on its so-called American Manufacturing Program (AMP) — $100 billion more than it had first announced in February.

On first consideration, these developments would seem to be good news for every state, but especially for bluer ones where once thriving cities like Buffalo (NY), Flint (MI), Rockford (IL), and Waterbury (CT) have been hardest hit by globalized manufacturing. Every community which receives a new factory or administrative facility will benefit not only from increased employment but also from a technological upgrade to regional infrastructure. It will participate in what Allianz economic adviser Mohammed El Erian has termed America’s coming wave of “transformative innovation.”

But unfortunately for most blue jurisdictions, the same concerns which have caused so many of their residents to flee to red ones — high taxes and fees, inefficient public services, and a relatively hostile commercial environment — will also bias the planning of both foreign and domestic investors. Certainly, any new U.S. construction undertaken by Japanese, Canadian, and European companies will be sited in the same red states where they have already found it easier to do business: places like Alabama, Georgia, Florida, Indiana, Kentucky, North Carolina, South Carolina, and Texas.

And as for where America’s own companies are likely to expand, CEO Tim Cook gave a clear indication when he announced Apple’s forthcoming U.S. locations: primarily in Kentucky and Texas. The swing state of Arizona does get a chip facility because of the plant’s need for a dry climate, but there is just $10 billion for a Detroit-based training facility in blue Michigan and some scraps left over for rare earth recycling in the company’s home state of California.

JPMorgan Chase Chairman and CEO Jamie Dimon effectively made the same prediction when he announced this year’s itinerary for the bank’s annual bus tour of those states where it thinks it can most profitably expand branches. Dimon never called it an “all-red road trip” but did say that he and his top executives would be heading down through North Carolina and South Carolina to Georgia, Alabama, and Mississippi.

Even President Biden gave a financial cold shoulder to Democrat-leaning states when it came to deploying the billions raised for clean energy and semiconductor projects from his CHIPS and Inflation Reduction Acts. Conceding that it was “not a politically smart thing [for me] to do,” he nevertheless signed off on allocating 73 percent of the money to corporate and public-private partnerships in red states.

It should be noted that some blue states have received significant outside investment in recent years, but their apparent exceptionalism only goes to prove the rule. Delaware, for example, may not be the kind of right-to-work state where international companies prefer to operate, but its low business taxes and efficient legal system have resulted in 9.0 percent of its private-sector workforce being from abroad.

New Jersey Governor Phil Murphy has achieved nearly the same result (8.1 percent) by helping foreign investors leverage his state’s unique location — in the heart of the Boston-New York-Washington corridor with the largest East Coast port — to make up for its financial drawbacks. And very blue Massachusetts, despite its reputation for aggressively taxing high earners, has nevertheless become a magnate for life science companies by committing to spend $1 billion over ten years on biology education and related infrastructure.

If these outliers have any lesson for other blue states, it is that they do not need to be as financially attractive as their red cousins to benefit from the hundreds of billions of investment dollars about to be poured into the U.S. economy. They just need to be moving in the right direction, either initiating meaningful fiscal reform or offering some incentive to compensate for their economic negatives. Unfortunately, this is the last thing most blue state legislatures seem to have any interest in.

One step to win over potential investors that any blue state governor could easily take would be to sign onto the provision of the recently passed One Big Beautiful Bill Act (OBBBA) which gives tax credits for donations to nonprofits that offer private-school scholarships to children from lower income families. The credits are paid for by the federal government and, if agreed to by a state’s governor, could lure new office complexes and factories with the credible promise of a well-educated local workforce for decades to come.

Yet the chief executives of both Oregon and New Mexico — apparently more interested in placating their teacher unions than building a prosperous future — have already said no, while other blue state governors are “cautiously studying” the option.

It may seem hard to believe that America is on the verge of a quantum leap in business productivity which only part of the country will enjoy, but such a thing has happened before. After the Civil War, it was almost exclusively the northern and western states which enjoyed an “Industrial Revolution,” while the southern states were held back by a combination of vindictive federal legislation and their own refusal to see what was in their long-term interest.

For nearly a century the phrase “North vs. South” was popular shorthand for lopsided economic development. And in the century to come it appears increasingly likely to be “red vs. blue.”

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