Pro: Foreign ownership of U.S. companies jeopardizes America’s economy, security
To ensure America’s long-term prosperity and national security, strict limits on foreign government investments in U.S. companies and other hard assets are needed—and they are needed fast.
As demonstrated most recently by the purchase of 5 percent of Citigroup stock by Persian Gulf sheikhdom Abu Dhabi, the flood of official foreign money already eyeing America’s economic jewels will only continue ballooning.
Not only do these governments’ profits keep soaring from increasingly one-way trade with the United States and from robust global oil exports, but sagging yields on their traditional fixed-income U.S. investments plus the weakening dollar have spurred a search for higher returns—generally through official investment agencies called Sovereign Wealth Funds.
Although massive foreign government purchases of U.S. Treasury bills have been propping up American living standards, they are decidedly mixed blessings. After all, they stem from the massive debts America has piled up thanks to astronomical trade and broader international financial deficits. And they have encouraged Americans to continue living beyond their means by providing artificially cheap credit.
Meanwhile, the prominence in this picture of China, Russia and the Persian Gulf oil exporters—hardly U.S. allies or even reliable neutrals—greatly magnifies the risks of such dependence.
Holdings of U.S. Treasury bills also give foreign governments considerable influence over U.S. growth and inflation rates. Yet investments in American businesses create even more valuable benefits—access to and possible control over the world-class factories and laboratories that directly create the nation’s wealth and undergird its defenses, and to a financial system unrivaled at raising capital and transferring it to practically anyone anywhere instantaneously.
Strict limits on such investments could slow short-term American growth. But it would reduce much greater dangers. Economically, the smaller the foreign government presence in U.S. business, the fairer the competition, as fewer would be funded by the resources of national treasuries as well as by private capital.
U.S. economic efficiency and output would benefit, too, because governments rarely invest as effectively as private actors. Similarly, the Sovereign Wealth Funds’ economies are notorious for dreadful corporate governance. Their penetration of the United States could easily import crony capitalism, as well.
Foreign governments are also much likelier to direct profits back home rather than reinvest them in America, and to appropriate production, jobs and technologies critical for future growth for their populaces, as well. And the managers and other investors in financially weak companies in particular would be hard-pressed to rebuff a large, minority shareholder.
The possible security threats are more disturbing. Stakes in U.S. defense suppliers and other manufacturers could transfer national security secrets directly to potential foreign adversaries—such as China, whose government-related Huawei Technologies now owns part of 3Com, a producer of network security hardware and software for the U.S. military.
Such investments could also foster indirect transfers of military-related goods. After all, Persian Gulf governments typically wink at the rampant illegal trafficking in sensitive military goods and technologies in their region.
Hence a possible threat arising from Abu Dhabi’s November buy of an 8 percent stake in Advanced Micro Devices, the U.S. chipmaker whose products help design advanced American weapons.
The Gulf sheikhdoms are also major funding sources of and financial transshipment points for extremist groups and outright terrorists. Consequently, Abu Dhabi’s investment in Citigroup and its huge worldwide banking network should be ringing alarms about money laundering throughout the U.S. government.
Unfortunately, even banning foreign government investments in U.S. hard assets would not completely eliminate these dangers.
In most of the world, public and private sectors overlap much more than in the United States. But restricting each foreign government to, say, a 1 percent stake in individual targeted companies would enable the economy to realize some benefits from foreign resources and also significantly increase the obstacles to undue foreign influence.
Alan Tonelson is a research fellow at the U.S. Business & Industry Council in Washington and the author of “The Race to the Bottom.” Readers may write to him at USBIC, 910 Sixteenth Street, Suite 300, Washington, D.C. 20006; Web site: www.usbusiness.org.
Last updated: 12:10 pm Thursday, December 13, 2012