The United States attracted $180 billion in foreign direct investment in 2006. This is extremely important since inbound investment creates millions of high-wage, high-skilled American jobs that support our growing standard of living. But protectionist trends could disrupt this.

Global Funds Are Needed

In 2006, 20 bills were introduced in Congress that, if implemented, would have restricted foreign investment in the United States. What’s more, they could have prevented the Abu Dhabi Investment Authority’s $7.5 billion investment in Citigroup or the China Investment Corporation’s $5 billion injection in Morgan Stanley at the end of last year.

The capital infusion by the Abu Dhabi sovereign wealth fund owned by the United Arab Emirates boosted Citigroup’s share value and helped it deal more effectively with the subprime mortgage crisis. And the Chinese sovereign wealth fund helped Morgan Stanley cope with its first quarterly loss in 21 years.

The value of sovereign wealth funds — country owned funds consisting of financial assets such as stocks, bonds, property and other assets — is growing at a tremendous rate. In fact, their combined wealth estimated at several trillion dollars could more than triple over the next decade.

How would the United States benefit by denying itself investments from these funds?

Concerns Are Legitimate

Fear that foreign government-owned entities will seek control of strategically important industries for political gain is a legitimate concern. But thanks to the Committee for Foreign Investment in the United States (CFIUS) — which is comprised of 12 U.S. agencies, including the Defense, State and Commerce departments, as well as Homeland Security — foreign investment bids are objectively scrutinized to ensure that America’s strategic assets are well protected.

Plus, in July President Bush signed into law the Foreign Investment and National Security Act of 2007. This further strengthens the vetting process of foreign acquisitions that may present security concerns.

“The CFIUS review process takes care of situations that, for example, could involve the Chinese military wanting to buy Lockheed Martin,” said Stuart Anderson, executive director, National Foundation for American Policy, an Arlington, Va.-based policy research group.

Subjective Rules Are Easily Abused

Additional laws or outright banning of foreign governments from buying U.S. companies are not necessary and would only create problems.

For example, new procedures that are politically charged or make the review process extremely onerous are likely to have unintended consequences — like pushing legitimate investors elsewhere.

In 2006 a political firestorm erupted when Dubai Port World, a United Arab Emirates owned company, acquired several U.S. ports. Upon this news, many Members of Congress broke out in a cold sweat, fearful that Dubai Port World would not provide adequate U.S. port security.

It didn’t matter that foreign-owned firms already managed the majority of American ports, or that Homeland Security guards these ports. The pressure ultimately resulted in the Dubai firm relinquishing its interests.

In light of U.S. protectionist tendencies, other governments have begun to implement their own laws to restrict foreign purchases of their companies and other assets. If continued, this will stifle U.S. investment abroad.

Economic Security Is an Issue

Global integration through trade and investment is an essential component of our nation’s prosperity. More of it — not less — will improve our economic security, as well as create greater long-term shared interests among nations.

The United States has one of the most favorable business climates in the world. That’s why it has the ability to attract billions of dollars from companies like Siemens, the German-owned firm that employs more Americans than Nike, Coca-Cola and Mircrosoft combined.

The result: U.S. subsidiaries of foreign companies employ 5.1 million Americans with a payroll of $336 billion. This translates into annual average worker compensation of $66,042 — an amount well above the national average, according to the Washington, D.C.-based Organization for International Investment.

The Economic Report of the President says, “Foreign direct investment flows into the United States benefit the U.S. economy by stimulating growth, creating jobs, promoting research and development that spurs innovation, and financing the current account deficit.”

Objectivity Is Crucial

Based on U.S. transparent rules, inbound investments by sovereign wealth funds or other entities that appear suspect should be investigated and possibly denied. But legitimate investments, like China’s $3 billion infusion in U.S. private-equity giant Blackstone Group or Singapore’s $9.72 billion investment in the Swiss Bank, UBS, should be welcomed.

This article appeared in Impact Analysis, January-February 2008, and For Your Information, Winter 2008, a publication of the Bankers' Association for Finance and Trade.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author of several books, and a nationally syndicated columnist on global business, trade policy, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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