What I don’t understand about opposition to this is what economic theory says that one-way trade freedom serves US interests. China doesn’t let US companies buy Chinese companies. Leaving aside notions of fairness, what is the theoretical basis for arguing that the US should nonetheless allow Chinese ownership of US companies?
> what is the theoretical basis for arguing that the US should nonetheless allow Chinese ownership of US companies?
Why shouldn't it? Neither the stock market, nor capitalism cares who buys shares of a company. If China isn't interested in investments from the US, wouldn't that just make their own markets less efficient?
If your goal is efficient markets, then it shouldn't matter where your investment dollars are coming from.
I don't understand where this ridiculous notion of 'fairness' in capital markets is coming from. Money is money, if you want to ascribe morality to it, then this is not the economic system to do so in.
Consider this question: Should, say Nigeria allow US-based companies or persons to buy Nigerian companies/mineral rights/agricultural land?
If so, why? Under a reciprocal agreement, it's not like Nigerian companies are able to buy US companies/mineral rights/agricultural land. Even if they were allowed to in theory, they wouldn't have the money.
Does this mean that Nigeria should close itself to outside investment? Would Nigeria be better off if it did so? Is it only hurting itself by being closed to American investment?
You seem to be intentionally ignoring the parent's point.
They're asking why, if China doesn't allow US ownership of Chinese companies, should the US allow Chinese ownership of American companies, not some abstract question of fairness. Currently there are severe controls on US activity in the Chinese market, ownership restrictions among them.
So what? Who cares what China does internally. Globalization dogma says that countries that limit foreign investment are only hurting themselves. If they want to shoot themselves in the foot, that's their problem.
This economic mantra has been pushed by the United States for the past 70 years, mostly to get developing markets to open up to US companies. Maybe we should apply it domestically, and see what happens?
Agreed. If the purpose of all this is to create a more even playing field then there really shouldn’t be much rational opposition. If tarrifs were placed specifically for artificially protecting non national security related goods then that would be an economic disaster.
But if tarrifs are implemented to correct unfair trade agreements, then that isn’t economically unsound policy. How else do you rectify decades of wrong doing. IP theft, china can invest in whatever here, but we have artificial caps there. Significant tarrifs and regulatory issues there, far fewer here. Americans can’t buy property there, China purchases $150B a year in residential property here, pricing out many in the most sought after real estate markets. Forcing technology transfer to a totalitarian borderline authoritarian government and not doing anything would be pathetic.
What other tools do we have that are more palatable than tarrifs? War? Sanctions? Stop trading altogether? How else are you supposed to fix something, if the other side never wants to fix it?
> Americans can’t buy property there, China purchases $150B a year in residential property here
Would you even want to want to buy property in what you describe as an authoritarian, borderline totalitarian country?
The Chinese don't want their property to be subject to whims of party officials, so they invest elsewhere. This is a net positive for Americans (increasing real estate prices mean increasing total wealth), and also a creeping long-term negative for China which they can't easily fix without relinquishing control. Rather than trying to force the issue, USA should continue to take the high road and let the Communist Party slowly boil. It may take a long time, but the Chinese will eventually want their political freedom because they don't have real economic freedom without it.
>>This is a net positive for Americans (increasing real estate prices mean increasing total wealth).
Uh, not so much. Being priced out of home ownership means a smaller and smaller portion of Americans would (do) benefit from this increased "total wealth".
Uneven wealth distribution is a problem that Americans could fix by themselves if they wanted to. The solution is not to drive foreign investment elsewhere.
It is a solution. Buying real-estate is not as economically productive as say creating a factory. We created factories in china, imported their goods, gave them $$$, with which they are slowly buying america. Remember every time u import, you are selling your country. If its not balanced with exports, you are eventually handing off the country. America was long depending on fooling other countriesby devaluing dollars, but tgat does not work with china.
Do I want to invest in the 2nd fastest growing economy in the world? One which has artificial controls to make sure my investment is stable, yes I do. Investment in non residential areas are heavily blocked with rules such as technology transfer, tarrifs, and management needing to be Chinese but is more appealing. Nonetheless, residential real estate in tier 1 Chinese cities is one of the best investments there is. It’s like investing in Manhattan, Paris, London, SF 30 years ago. You know as wealth is created your property value will exponentially grow. So the answer is a resounding yes.
It’s a net positive if it was a 2 way street. Currently, I’m competing with the entire world to purchase a house in the Valley. Chinese investment is in SV, LA, NYC, Vancouver, Toronto, NZ, Sydney and Melbourne. All areas where locals are priced out, income inequality is rampant, and only those who sell are realizing actual wealth. Salaries in those areas are higher solely for housing prices. That means our companies losing out on billions due to foreign unfair investment.
Chinese aren’t moving to these areas in many cases. They are just investing and parking their money, some of it through illicit means. In Canada, the majority of Chinese RE investment is through the drug trade. They are legitimizing this.
In NZ xenophobia has increased significantly so much that they are planning to block all foreign investments period. That doesn’t seem to be a net positive to me. Australia has jacked up foreign investment taxes twice and Canada 3 times in just 2 years. The latter are also turning more xenophobic and honestly I don’t blame them.
Its called the WTO and it has been around for a while.
And this won't fix anything. The rest of the world will happily keep doing business with China. The US is just salty. Instead of adapting to new circumstances they cling to US hegemony. Orange man yelling at clouds.
Besides being short on sources and facts and being overly emotional I wonder what you meN by, Orange man... Is that some kind of racist statement about POTUS?
China has completely swallowed the WTO. Letting it in was one of the biggest mistakes in history, it has completely gamed the system. The goodwill and ethics have been swamped. China makes frivolous litigation to slow down the entire process and has spent years and billions learning how to completely game it. Even when the WTO rules against China, it is many years after the fact and the competition is already dead and China has taken over the market share.
Just because we can wage a trade war doesn’t mean we can win it.
The fact that we have an unfair trade agreement with China now, in no way means that a trade war will necessarily be to our benefit. I imagine it’s going to damage our economy quite a bit, and do the same for China.
You mention that inaction would be “pathetic” which may be the case. And if we want to do something about it, we can, but it doesn’t mean the US or the world will better off for doing so.
Just look at Iraq. For sure, there was a horrible dictator there who committed genocide and other terrible things. So the US acted. Was it a success? Was it the best possible use of those trillions of dollars? Who knows, but I suspect not.
Just because there is a wrong in the world doesn’t mean that we definitely have the means to fix it.
Agreed it is probably a bad state to be in; Chinese companies buying up ours. But if I own a company, I shouldn't need permission from Washington to do with it as I please as long as I'm not defrauding or directly harming others. Freedom is messy.
If you're the sole manufacturer or patent-holder for critical communications equipment (e.g. Qualcomm) then I do think the Government is representing the people's interest by preventing your sale.
>as long as I'm not defrauding or directly harming others
I'm curious, why "directly harming others"? The argument here is that you doing as you please (selling critical technology to the Chinese) is indirectly harming others so I'm curious about the distinction you draw between when it's okay to harm others and when it's not.
Included "directly" very intentionally. I'm of the mind set that you never give government subjective authority over something. You put up very strict guardrails for their power. "Indirectly harming others" is way too subjective and leaves far too much room for abuse of power/corruption. I don't judge laws by their best meant intentions, but by their worst case scenarios.
I would say harm vs. not harm is much less subjective than direct harm vs. indirect harm. Is yelling 'fire' in a crowded theater direct or indirect harm? Defining that seems much trickier than just defining whether it's harm.
"No direct Harm Vs. Harm" is essentially "No Harm Vs. Harm". The "direct" is only included to limit it's interpretations or to be more specific. Proving "direct harm", in this case, is proving "harm". Without being able to prove a direct causal relationship, the government would have no justification to act.
Inaccurately and purposefully yelling "fire!" in a crowded space is a direct attempt to cause panic. In other words, you would never be prosecuted for yelling "fire!" in a crowded space when there actually was a fire. It is not the act of yelling "fire!" that is illegal, it is purposefully causing a false panic that is illegal.
All of them. Currently there are severe restrictions on foreign ownership of Chinese ventures, though the restrictions vary by sector and this year some of the restrictions in some sectors have been eased up a little.
It is not just buying a Chinese company that is forbidden, but foreign companies cannot build a factory for production in China without creating a company that is majority Chinese owned that owns the factory. No possibility for trade secrets. All your tech will be learned and transferred to China.
There is a game theoretical argument for imposing retaliatory tariffs in hopes of instigating the other party to change, eventually reaching an outcome with lower trade barriers than at the start. But there is every indication that Trump fundamentally believes trade is bad (because of a fundamental misunderstanding of trade deficits) and has no intention of negotiating such a deal.
I'd say the Nobel Prize winning trade theorist explains it better than I can, but feel free to read the NYT editorial by the (non-prize-winning) economist if you prefer html to pdf.
I ask people to make their own arguments because I think it's lazy to post things that even you don't understand. But if you want to me talk Krugman then okay:
Here’s an easy one: suppose that an industry generates negative environmental externalities that are not properly priced, and that international trade leads to an expansion of that industry in your country. Then that trade may indeed reduce national welfare
Okay so he admits that externalities can outweigh our more traditional views of gains from trade and then he moves on to state and refute a different argument.
The case for these tariffs is best going to be made through the externality argument though and tariffs/trade restrictions are an example where we believe externalities are outweighing our benefits. Seen through this lens common economic reasoning would tell us that a large improperly priced externality requires a tax to bring the item up to the proper price. In trade this tax is called a tariff and it's common sense to use it if you believe your country is being indirectly harmed by free trade.
Trump (but more probably his advisors) believe there are large external effects to having a strong technology industry at home in the 21st Century. Accordingly they are using tariffs and trade restrictions to maintain that.
>I ask people to make their own arguments because I think it's lazy to post things that even you don't understand.
My degree happens to be in economics, but okay. The argument is that trade barriers, both unilateral and bilateral, cause economic losses and are therefore bad. The belief that asymmetric trade barriers result in the unrestricted country "losing" is wrong - removal of trade barriers results in a reduction of deadweight losses even without symmetry. This is well-supported economic consensus with acceptance among economists comparable to that of climate change among climatologists.
>Okay so he admits that externalities can outweigh our more traditional views of gains from trade and then he moves on to state and refute a different argument.
No, he really doesn't. His point is that the proper solution to externalities is to price them in domestically, and tariffs in lieu of environmental policy harmonization are "second best" with unconvincing arguments in favor.
However, this discussion is about using tariffs as a tool to combat externalities unrelated to trade and is tangential at best to our discussion.
>The case for these tariffs is best going to be made through the externality argument though and tariffs/trade restrictions are an example where we believe externalities are outweighing our benefits. Seen through this lens common economic reasoning would tell us that a large improperly priced externality requires a tax to bring the item up to the proper price. In trade this tax is called a tariff and it's common sense to use it if you believe your country is being indirectly harmed by free trade.
This is precisely where Trump is wrong. Removal of trade barriers has positive externalities, not negative. It is a Kaldor-Hicks improvement.
>Trump (but more probably his advisors) believe there are large external effects to having a strong technology industry at home in the 21st Century. Accordingly they are using tariffs and trade restrictions to maintain that.
This is not in line with their stated reasoning. They believe tariffs are necessary because trade deficits are losses.
> No, he really doesn't. His point is that the proper solution to externalities is to price them in domestically, and tariffs in lieu of environmental policy harmonization are "second best" with unconvincing arguments in favor.
How does that help? Isn’t the country that has lax environmental laws and can sell cheaply going to win over the country that has tough environmental laws? (Genuinely asking, my degree is in engineering not economics.)
And do these models account for changes in dynamic equillibrium? E.g. a foreign country engaging in dumping ends up killing the domestic industry? It seems odd that exercise of monopoly power can lead to deadweight losses in a closed domestic market, but a country engaging in anti-competitive measures overseas is best handled by doing nothing.
Do these theories account for the interactions between economics and government. (E.g. the ability of foreign governments to exercise power over companies in their jurisdiction?)
I’m not trying to argue with you by speculating, I’m trying to figure out the metes and bounds of your assertion.
>How does that help? Isn’t the country that has lax environmental laws and can sell cheaply going to win over the country that has tough environmental laws? (Genuinely asking, my degree is in engineering not economics.)
You're correct it doesn't help. Either you raise the price of the foreign good through a tariff or other sneaky measure or consumers will buy it and amplify the externality.
>And do these models account for changes in dynamic equillibrium? E.g. a foreign country engaging in dumping ends up killing the domestic industry? It seems odd that exercise of monopoly power can lead to deadweight losses in a closed domestic market, but a country engaging in anti-competitive measures overseas is best handled by doing nothing.
They don't and even Krugman would admit to this now. It's actually funny that we're using Krugman from 1998 because if we take his trade talk from just four years earlier it's clear he thinks distribution could be a problem:
The truth, however, is that fears about the economic impact of Third World competition are almost entirely unjustified. Economic growth in low-wage nations is in principle as likely to raise as to lower per capita income in high-wage countries; the actual effects have been negligible. In theory, there are some reasons for concern about the possible impact of Third World competition on the distribution (as opposed to the level) of income in the West, but there are few signs that such concern is justified in practice, at least so far.
And then if we zip past 1998 back to the present day he's once again walking back on the pro trade rhetoric here:
But it’s also true that much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects that are what standard models actually predict.
That said, not all free-trade advocates are paragons of intellectual honesty. In fact, the elite case for ever-freer trade, the one that the public hears, is largely a scam. That’s true even if you exclude the most egregious nonsense, like Mitt Romney’s claim that protectionism causes recessions. What you hear, all too often, are claims that trade is an engine of job creation, that trade agreements will have big payoffs in terms of economic growth and that they are good for everyone.
Yet what the models of international trade used by real experts say is that, in general, agreements that lead to more trade neither create nor destroy jobs; that they usually make countries more efficient and richer, but that the numbers aren’t huge; and that they can easily produce losers as well as winners. In principle the overall gains mean that the winners could compensate the losers, so that everyone gains. In practice, especially given the scorched-earth obstructionism of the G.O.P., that’s not going to happen.
The answer to your questions are all basically no and I would blame it on the blurring between economics and folk economics. I also hold an econ degree and I see this almost everywhere - someone holds up a simplified model, claims it proves free trade is good or minimum wages are bad or whatever political issue is hot and then they close the book. There's tons and tons of relevant literature on all these theories and once you dig into it and the models become more sophisticated then many of the standard things we expect the model to say morph and change. But this academic economics is usually crowded out in public debate by the simple models and easy free market talking points.
Trump believes that the USA is getting a bad deal - not that trade is bad. China may purchase US companies and Universities, but US is nowhere close to being able to do the same in China.
Also, you say that Trump misunderstands trade deficits. Can you prove that at all? He's a very successful businessman. I would be more likely to think it's you with the misunderstanding.
>Trump believes that the USA is getting a bad deal - not that trade is bad. China may purchase US companies and Universities, but US is nowhere close to being able to do the same in China.
I'd like to believe this is so, but the evidence doesn't support it. Trump and Peter Navarro have repeatedly criticized trade itself, and particularly trade deficits, rather than asymmetric trade barriers.
>Also, you say that Trump misunderstands trade deficits. Can you prove that at all? He's a very successful businessman. I would be more likely to think it's you with the misunderstanding.
Business and economics are very distinct fields; the idea that success in business leads to academic understanding of economics is a misconception.
Trump believes, as shown in the linked tweet, that a country "loses money" when a trade deficit exists. In reality, trade deficits and capital inflows are inextricably linked, due to an accounting identity.
>As economist Milton Friedman argued long ago, the real gain from international trade is not what we export but what we import.
I'm interested in seeing which business of Trump's has been successful. AFAIK anything that does not have to do with real estate has been an abject failure.
Without wading into the politics, as I understand it, had he to do it over again, taking his inheritance and simply investing it in the S&P 500 --- like any common schmoe --- would have produced superior returns.
That seems like the definition of an "unsuccessful businessman", but I'd be interested in the semantic interpretation where it doesn't.
Success in business can also be defined as creating a sustainable entity that builds infrastructure/buildings, provides services, and employs people. The local Ben Franklin crafts and Ace Hardware franchisee in my hometown would qualify by that definition, though his personal profit may be higher if he had instead liquidated his family's holdings and put it all in an index fund.
If you define "successful businessman" strictly by comparative potential personal profit, that would rule out a great many people who have found happiness and decent profit in what they've built, and restrict qualifiers to the idle rich and a few unicorns. That's a break from how the word "success" is used in all other contexts.
You'd then be defining "successful businessman" as a subjective X-factor. But that X-factor doesn't apply here; the argument above was that, as a successful businessperson, Trump has demonstrable competence in dealmaking. If he barely beats the S&P500 (or, depending which of 5 years in the late '70s or early '80s you start counting, severely lags it), that competence hasn't been demonstrated.
This is a quagmire I let myself get swallowed in so often that its likely not healthy, but my favorite 'Trump' stories all revolve around the crazy things he is accused of that no 'successful' business person would need to do.
The best of course is the accusation that he tried to disguise his voice to convince a forbes reporter that he was richer than he was to get on the top 400 list:
This is actually my own pet conspiracy theory. He didn't want to release his tax returns because he's doing shady tax dodges, he did it because it proves he's not actually rich.
Removal of trade barriers is a net good, benefits are not distributed equally, and historically have accrued more strongly to those who already have the money to take advantage of the decreased trade barriers.
Removing tariffs on manufactured goods between the US and China, for instance, strongly benefits people who can set up factories to take advantage of the cheaper labor and materials. It weakly benefits consumers who get slightly (if at all - corporations might just take the difference as profit depending on the level of competition) cheaper goods, and it disadvantage all of the working class that now has to compete with cheaper Chinese labor.
This can be mitigated by income redistribution, funding for job skills retraining, and so on (although it kinda sucks to find yourself back at the bottom rung of a new field at 40 because you can't find job opportunities anymore) but, historically, these programs haven't received any funding, so it's pretty safe to assume they won't exist until proven otherwise.
Economists always love the slight of hand that you pointed out. If there are a million losers, and a million plus 1 winners, economists see it as a sound policy.
Right. Trade is a Kaldor-Hicks improvement, not Pareto. Losers exist, though they could be theoretically compensated for their loss to create a Pareto-efficient outcome. The same is true of immigration and automation.
>(if at all - corporations might just take the difference as profit depending on the level of competition)
This doesn't make sense — if corporations 'absorb' that profit, consumers have no reason to purchase imports over domestic goods. Moreover goods with heavy competition from low-wage countries tend to have highly competitive markets, so the price is the marginal cost of production.
>This can be mitigated by income redistribution, funding for job skills retraining, and so on (although it kinda sucks to find yourself back at the bottom rung of a new field at 40 because you can't find job opportunities anymore) but, historically, these programs haven't received any funding, so it's pretty safe to assume they won't exist until proven otherwise.
Actually these programs tend to be well-funded but undersubscribed.
I've seen economists argue that most of the benefits of low tariffs actually comes from increased imports. Increasing imports increases the consumer surplus from the cheaper goods and is an easy way to increase a country's standard of living without much effort.
Singapore, Switzerland, Hong Kong, and Macau all have 0 import tariffs, and rather than mass unemployment they are incredibly rich by international standards.
So a banking haven, with banks so massive they'd require the big US banks to get over 10x larger to match the relative scale to the Swiss economy.
A tiny, highly regulated gambling haven, that can't be replicated to the US scale at all.
And then two tiny islands in Hong Kong and Singapore, with a combined 13 million people.
That's a really terrible comparison sheet for arguing low tariffs are a big benefit to the US economy.
Now show me the same for: Germany, France, UK, Japan, Australia, Canada, China, India, Italy, Brazil, Russia, Spain, South Korea. The world's largest economies, and countries that actually have serious population sizes.
My point is that 0 tariffs doesn't automatically equal disaster. But I agree that there's not enough evidence to say that unilaterally reducing tariffs to zero is actually the best policy, although some economists do make that argument.
Other than Switzerland, those entities are basically built around a single large city. I doubt that their experience is very telling for countries that have a large non-urban population.
Those are all tiny "money/finance" economies and in the case of macau - a gambling economy. None of them are major manufacturing countries or economic powers.
They have 0 imports because they hardly produce anything.
Most of the top 20 wealthiest countries have tariffs.
Also, I don't know why we keep deferring to economists as if they know anything since they are wrong about everything ( even the nobel prize winners ) and economics isn't an empirically testable science. Economics is a religion more than a science. It's ridiculous we treat it as a science.
Remember that we are supposed to have been in a world ending global recession for the past two years according to one of the most "eminent" economists.
>Also, I don't know why we keep deferring to economists as if they know anything since they are wrong about everything ( even the nobel prize winners ) and economics isn't an empirically testable science. Economics is a religion more than a science. It's ridiculous we treat it as a science.
"A friend of mine once said: You know what the problem is with being an economist? Everyone has an opinion about the economy. Nobody goes up to a geologist and says, 'Igneous rocks are fucking bullshit.'"
> "A friend of mine once said: You know what the problem is with being an economist? Everyone has an opinion about the economy.
That's the problem with all pseudosciences - politics, social sciences, etc. Everyone has an opinion and they can't provide any empirical tests to get at the truth.
That's the difference between a science like physics and a pseudoscience like economics.
It's why two economists with contradictory views can win a nobel prize at the same time.
> Nobody goes up to a geologist and says, 'Igneous rocks are fucking bullshit.'"
Because a geologist can show you that igneous rocks are not "bullshit". Empirically, physically. They can provide empirical tests to differentiate an igneous rock from bullshit.
I think that the point is that "economist says" should be the beginning of a debate, not the end - it's a data point, but not conclusive evidence in favor of or against whatever's being referenced in most situations
What other inputs into the decision should be included? I'm kind of at a loss as to what other approaches would complement an economic one, even acknowledging the severe limitations of the discipline.
Of course not. Bullshit petrifies into coprolites, which would then only be found in sedimentary layers. And even then you could only find the appropriate types of coprolites in middle-Pleistocene layers from 2 Mya or later.
Of course, Keynesian geology continuously redefines the speed of time and the mass of the kilogram, such that if you look at a rock that classical geology says is 30g and deposited 10 Mya, the Keynesian might say it is 200g and 30 Megayears old. Then the Chicago geologist, the Marxist geologist, and the Austrian geologist would chime in: "No it isn't!" and have a grand bout of shouting and fisticuffs. Most hard sciences actually like their units of measurement to have constant value, and their data reduction calculations to remain the same.
Like, for instance, defining a US dollar to be the money value of a coin minted from 26.73g of .900 silver, and then never changing it again.
Switzerland, Hong Kong are banking centers. Singapore, and Macau focus very heavily on manufacturing and pass through trade.
One issue I have with economists and their theories of tariffs is they are unable to consider the effects of institutional tariffs and subsidies. Meaning companies while the could buy foreign products instead buy locally produced ones. And the banking sector shows strong preferences to who they extend capital to. For instance providing capital to build a factory and refusing to loan money to buy back shares.
Some people will contest your question's premise, but there's also a geopolitical argument.
There's a strong sentiment in certain circles that the best way to deal with emerging powers is by incorporating them into global neoliberal institutions. The theory is that including these countries sets up the correct incentives for liberalization, and that liberal markets beget a middle clas s which eventually demands democratic voice. And democracies are western-friendly.
So the roadmap for China was supposed to be a gradual liberalization, first economically and then politically. This strategy is a long game and "requires patience".
I'm not particularly convinced by this argument (it's too... cold war-y), but I'm doing my best to portray it accurately. And if you accept its basic premise, then there's a strong geopolitical long-game case for "putting up with" asymmetric trade barriers.
> The theory is that including these countries sets up the correct incentives for liberalization, and that liberal markets beget a middle clas s which eventually demands democratic voice. And democracies are western-friendly.
That was supposed to be the plan, but the Chinese government didn't blink in 1989, when the demand for democracy happened. And they suffered no consequence for it. In retrospect that is when we should have realized that the script wasn't going to work.
Right, I agree that it's a good high-level assessment of US geopolitical strategy. Was just offering an idea of when we possibly should have realized it wasn't going to work on China.
As a leftist this is one thing I agree with Trump on. Before the bipartisan free-trade consensus emerged it was the corporate-wing of Republicans that pushed for free trade while the union and human-rights wings of the Democrats pushed for restrictions.
China investing into US companies is completely separate from the IP issue. For all intents and purposes, once you've bought a company, you've bought its IP.
Buying a company is about the most legal way I can think of, for acquiring IP.
Again - how does allowing foreign ownership of companies in your country harm your country? You mention IP - but it's not your country's IP - it's a particular company's IP. If its owners want to sell it, why does it matter if they sell it to an American, or a Chinese investor?
> If its owners want to sell it, why does it matter if they sell it to an American, or a Chinese investor?
Because there are second order benefits to Americans of America being the world power. (E.g., Americans really don’t want to live in a world where you have to learn Chinese to succeed in the business world, as opposed to everyone else having to learn English.)
Those all can cause issues. Allowing mostly foreign companies to own the majority of a country's economic sector can turn out quite bad. In fact, it has happened in history with banana republics.
Take this to the extreme to find out, "How does China owning _all_ US companies harm the US (economically)?"
Now it's obvious, it's economic warfare, and a foreign power that creates an imbalance of this nature could be reasonably classified as an invasion.
Note, the US government doesn't "buy" companies, private citizens do. Yet, I would have no issues with private foreigners buying companies, I do think having a foreign government buying companies is very bad, especially if their leader is a dictator for life.
Isn't that how bonds work? [0] Nothing extraordinary needed.
The threat is China demanding total payment at once (my vague understanding of the actual real world problem due to debt owed). Something that the US has laws protecting land and home owners [1], but no law says another country can't do this to us.
Government bonds generally have a fixed term, so unless I'm mistaken, repayment can't be demanded all at once. What they can do, though, is stop rolling over the debt into new bonds, which, given the deficits the US government is running, doesn't seem like a great scenario for the US, as I believe that would force bond yields to rise to entice enough buyers, which would eventually cause the cost of servicing the debt to rise.
>Government bonds generally have a fixed term, so unless I'm mistaken, repayment can't be demanded all at once.
But espionage, market and currency manipulation, copyright and patent infringement and a miriad of other activities are illegal, yet China does them with impunity.
I can imagine they can demand whatever they want, (they are a sovereign nation) and can use that debt as a bargaining chip to be used in any negotiations.
In theory, I think you are correct, in practice, who know what is possible?
I guess, I don't know of any precedents for demanding bond repayment pre-term (though I'm not well versed in that history). Those others all have precedents, and most are things that it's generally accepted that almost all large nations engage in regularly to greater or lesser degrees.
Sure, but then the US government is accepting capital from China to finance itself. Is it a high level quid-pro-quo to give China "freer" access to the US market?
I'll drop this here. One reason for this is Chinese and European managers are _a lot_ better at running companies than American ones. That's because US managers are focused almost exclusively on looting that companies they run.
The US management class has grown fearful of foreign owners. Because the foreign owners generally do not place Americans at the top levels because they can't trust them.
I don't have a problem with the idea of trying to stop China's unfair trade practices, I have problem with how inept and awful Trump's policies have been in trying to do so.
China has really perfected the practice of massively unfair trade practices and perform them with the masterful foresight of a chess grand master. They've managed some pretty brazenly one-sided practices all without falling afoul of the WTO.
The problem I have with Trump's agenda is that he's playing this whole thing like a rank amateur going up against Magnus Carlsen, and he's going to get smacked down hard. Trump has managed to piss off all of our closest trade partners, and has seemingly taken bribes from the Chinese to relax the embargo on ZTE. The US economy is on the verge of a major collapse from Trump's rather arrogant and unfocused use of tariffs against every major trade partner. Trump's efforts are going to fail, and in a massively spectacular way that will cause massive damage to the US economy, and will leave China in a very favorable position.
A better strategy would have been a coordinated effort with our closest trade partners and allies to place pressure on China via technology and financial embargoes, as well as getting the WTO to identify and penalize China's massive indirect corporate subsidies. A global coordinated effor of cutting China off from the global markets until they open they massively reform their trading practices and open up their local markets to foreign companies is probably the only viable way to equalize trade with China.
American companies benefit from access to Chinese capital. Chinese companies are denied access to American capital. Given that investment opportunities in china are no better (or worse) than anywhere else in the world (efficient markets), it seems dumb to try to change the status quo, from the US point of view.
Well, every country is protectionist when it wants to, and projects itself as egalitarian when it doesn't hurt them as much. The 'do as I say' and not 'as I did' approach has a bit of a smell to it. Walmart shoppers overwhelmingly purchased cheap Chinese goods and made their American owners very very rich, while giving average consumers access to a larger section of goods and services than those provided by US companies. Rising unemployment signals the end of that gravy train.
>China doesn’t let US companies buy Chinese companies
Is that really true? I found this stat - https://imgur.com/a/z5eAykw
Seems like there is a lot of inbound activity.
>Leaving aside notions of fairness, what is the theoretical basis for arguing that the US should nonetheless allow Chinese ownership of US companies?
The US has sold bonds to China. It doesn't mind taking money from China to finance itself. I'd say the same foreign policy should extend to foreign investment, no? Oh and it has the power to stop legal purchases of US businesses from China (e.g. Micron) when it wants to. The US government can and has exerted a lot of power to keep certain kinds of tech in the US.
And as a point of comparison .. Not sure if there are any Chinese companies here :-
The rationale is that the capital assets of the United States, owned by the citizens of the United States become more valuable due to more demand aka more money chasing the assets. China is the second largest economy in the world, the fast growing economy has created a lot of very wealthy citizens, and the savings rate is much higher there. These people are huge purchasers of every kind of US asset: equities, bonds, real estate -- you name it. Without them, the price of US stocks will go down, the valuation of your company will go down, the value of your house will go down, and more. Having said that, if Chinese deal flow is temporarily restricted so that US citizens gain the ability to buy Chinese equity and US companies get better access to Chinese markets, that would be a HUGE win for US companies and the US economy.
> price of US stocks will go down, the valuation of your company will go down, the value of your house will go down, and more.
You say that as if it is a bad thing, but in europe foreign investment like this can be a source of inequality and makes houses unaffordable for the middle class
You can have foreign investment and affordable housing. Don't blame the whole housing crisis on foreigners -- we created the affordable housing crisis ourselves. Foreign investment makes us better off, not worse off. Maybe your rent goes up $25 because of increased housing demand from foreign buyers, but then your city is now benefiting from tax revenue from these foreigners and providing you with more services that you benefit from -- let's say, for example, they hire more teachers to deliver a higher quality education at the same price for your children. Now these new teachers need to look presentable for their students so now maybe the local hair dresser is getting more business, and so she decides to expand into the neighboring space and hires you to manage construction...
What i'm getting at here is that more value and economic activity in a community flows around and benefits everyone in a lot of ways. It's somewhat ridiculous to say it would be a good thing to watch the price of US assets fall when foreign investment is probably not even in the top 3 reasons for the current housing situation in the US. Even if housing becomes slightly more affordable, you are losing the money you saved out the other end in your stock, 401k, options, and ownership stakes in any private companies.
We're better off allowing foreigners to invest, with certain restrictions of course.
Foreign speculative bubbles can seriously damage markets when they pop, as has happened before with the Japanese at the end of the 80s on the American and Canadian west coasts. The current Chinese driven bubble looks very similar to the Japanese one.
Also, your rent isn’t going up by $25, but $1000. So even if your local gov is raking in more property taxes, you can only benefit from that if you can still afford to live there at all.
It should be noted that Steven Mnuchin disputes this report's accuracy:
>On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn’t exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology.
This is the most transparent non-confirmation confirmation he could have possibly given. The US has only been discussing one country in the context of stealing technology. And if there are smaller countries whose companies are trying to steal technology that have been discussed but not reported (probably because they are tiny) it’s unlikely their companies are trying to buy US companies.
One big open question about this policy is whether it will severely restrict Chinese VC investment in the US. There's been discussions about subjecting all Chinese VC investment to the CFIUS, which would effectively stop all but the very largest deals.
reply