Is U.S. economic patriotism hurting?

May 15, 2012

Any Americans believing that their country is being bought up by the Chinese might want to pay heed to a new report from the Vale Columbia Center on Sustainable International Investment. It says that China is a minimal player in terms of foreign direct investment in the United States and that Washington should in fact be doing a lot  more to get it to gear up its buying.

To start with, look at the magic number.  In 2010, the last year for which numbers are available, only 0.25 percent of FDI into the Untied States came from China.  Switzerland, Britain,  Japan, France, Germany, Luxembourg, the Netherlands,  Canada were all far bigger. In the U.S. Department of Commerce’s report on the year, China, numbers were so small they were lumped into a category simply called  ”others”.

This is not enough, the Vale Columbia report says. Given China’s burgeoning economic role across the globe, America can benefit from a lot:

First, FDI provides an influx of capital into the struggling economy, increasing employment at no cost to the taxpayer. Second, jobs in foreign affiliates are typically better remunerated than similar jobs in domestically owned companies. Third, keeping the US open to foreign investment demonstrates a global example for international openness. Finally, Chinese money refused by the U.S. could alternatively be directed to competitors or even the U.S.’s enemies.

(On the latter point, its worth reading our global economic correspondent Alan Wheatley’s story on China’s influence in Europe)

The Vale Columbia report acknowledges that Chinese FDI  is controversial – primarily because a lot of Chinese companies are state-controlled and therefore raise fears that FDI may be more strategic that profit-seeking. There is also the concern about subsidies, piracy and economic espionage.

But the gains from opening the door to Chinese outweigh the risks, the report — entitled Economic Patriotism: Dealing with Chinese direct investment in the United States — says, recommending a series of steps such as dumping reciprocity clauses in FDI bilateral dealings.

If the U.S. does not act quickly to implement the above recommendations, it might continue to lose Chinese investment — expected to top US$ 1 trillion by the end of the decade — to Europe and other competitors. The US should corral as much of this investment as possible to revitalize the domestic economy and strengthen its image as an active supporter of an international investment openness.

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“The US should corral as much of this investment as possible to revitalize the domestic economy and strengthen its image as an active supporter of an international investment openness.”

…or not.

China appears to fall into that grey area of desired market, yet geopolitical strategic opponent.

Just how close should we really be with them?

Posted by LBK2 | Report as abusive