Perils of Closing Border to Investors

Whether we like it or not, in a globally interconnected economy, America's prosperity depends on the willingness of foreigners to invest here.

Resident Fellow James K. Glassman
Resident Fellow
James K. Glassman
So far, so good. The United States has the largest audience of acquisitive consumers in the world, super-productive workers, and broad and deep capital markets. As a result, we can import far more goods than we export and still maintain low interest rates and a growing economy--because the dollars we send abroad are eagerly recycled back to the United States as investments.

Also, because the United States has been a relatively open market, we benefit from increased competition as foreign companies bid for our business. Prices fall and quality rises on everything from crewneck sweaters to the software that helps run state governments.

But storm clouds are building--and they have become even more ominous since the Nov. 7 congressional elections. The rest of the world is receiving unmistakable signals that the United States is becoming a less hospitable place for investment--not for economic reasons, but for political and even social ones.

Last year, Congress stopped a Chinese oil company, CNOOC, whose shares are listed on the New York Stock Exchange, from buying Unocal, a U.S.-based company with extensive Asian holdings. Earlier this year, an uproar in the media and among politicians blocked a Dubai-based corporation from a deal to manage operations at U.S. ports.

Legitimate security concerns needed addressing in the Dubai/ports affair, but the response in both cases reinforced the image abroad of the United States as a country that is closing its borders--and not just to illegal immigrants.

Now, Congress is considering legislation that would make matters even worse by imposing more onerous rules on foreign investment in the United States. Isolating ourselves from the rest of the world is a sure way to lower our standard of living.

In the past, America's ability to attract foreign companies to launch and build subsidiaries here has been a bright spot for our economy, providing U.S. workers with good jobs in a process dubbed "insourcing." Toyota, for example, started moving production facilities to the United States in 1986. The company has invested $14 billion and employs 32,000.

But a survey in September by the Organization for International Investment found that insourcing is on the decline. After rising 43 percent between 1994 and 2000, the number of U.S. workers on the payrolls of foreign-based companies dropped 9.6 percent, to 5.1 million, between 2000 and 2004, the most recent year for data.

Certainly, other countries are aggressively courting business, for example by offering substantial tax breaks to attract new factories. But it is the self-inflicted damage by Congress that is so baffling. The United States will only hurt its economy and security further if Congress approves the Senate version of a bill that changes the role of the Committee on Foreign Investment in the United States and makes it more difficult for international companies to set up shop here.

Perhaps even worse is legislation--co-sponsored by Reps. Ike Skelton (D., Mo.) and Duncan Hunter (R., Calif.), the incoming and outgoing chairmen of the House Armed Services Committee, and exploiting the Dubai ports imbroglio--that would add extreme "buy American" provisions to major sectors of the economy such as energy and telecommunications. The rules would deter the best foreign-based companies from selling their products in the United States, opening plants here, and employing Americans, especially in high-paying high-tech jobs.

The situation threatens to get worse now that Congress has changed hands.

Rep. Sherrod Brown, who unseated Republican Sen. Mike DeWine in Ohio, ran on a platform that pledged "to make sure government contractors buy American goods with taxpayer dollars." In a misguided effort to look tough on homeland security and appeal to their labor base, Democrats might decide to fan the flames of isolationism with even more restrictions on foreign companies.

That would not only discourage international firms from doing business here but also would encourage other governments to enact similar constraints on U.S. firms doing business abroad. We tried this Fortress America approach in the 1930s, and it paid off in misery.

On the other hand, the alarming decline in insourcing, coupled with increased international competition for good jobs, may inspire both Republicans and Democrats to become more responsible and work toward preserving open global trade, investment and international cooperation. Let's hope so.

James K. Glassman is a resident fellow at AEI and editor in chief of The American.

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About the Author

 

James K.
Glassman
  • James K. Glassman is a visiting fellow at the American Enterprise Institute (AEI), where he works on Internet and communications policy in the new AEI Center for Internet, Communications, and Technology Policy.

    A scholar, diplomat, and journalist, Glassman rejoins AEI after having served as under secretary of state for public diplomacy and public affairs, during which time he led America’s public diplomacy outreach and inaugurated the use of new Internet technology in these efforts, an approach he christened “public diplomacy 2.0.” He was also chairman of the Broadcasting Board of Governors, the independent federal agency that oversees all US government nonmilitary international broadcasting. Most recently, Glassman was instrumental in the creation of the George W. Bush Institute, where he remains the founding executive director.

    Before his government service, Glassman was a senior fellow at AEI, where he specialized in economics and technology and founded The American, AEI’s magazine, which he led as editor-in-chief until his departure from AEI in 2007.

    In addition to his government service, Glassman was a former president of The Atlantic, publisher of The New Republic, executive vice president of US News & World Report, and editor-in-chief and co-owner of Roll Call. As a columnist for The Washington Post, Glassman wrote about political and economic issues. He was also the host of CNN’s “Capital Gang Sunday” and of PBS’s “TechnoPolitics.” In 2000, he cofounded TCS, a technology and policy website. His most recent book is “The Secret Code of the Superior Investor” (Crown Forum).


    Glassman has a B.A. in government from Harvard College where he was a managing editor of The Crimson.


     

  • Email: jim.glassman@aei.org

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