Beneficial Foreign Investment

A new study of foreign investments in the United States is reassuring at a time when both Congress and some state legislatures are considering establishment of new barriers to discourage the flow of foreign money into the United States. The study lends support to President Bush’s welcome commitment to resist the barriers and encourage a free flow of investments in the world.

The President told a press conference in February that “it is important if we believe in open markets that people be allowed to invest here, just as I’d like to see more openness for American investors in other countries.”

Openness is a problem that must be pressed, for there is stark unfairness in dealing with nations that are major investors in the United States but maintain critical barriers to U.S. investments in their countries.

However, those in a panic about foreign investments in the United States tend to forget that American overseas investments, measured as a percentage of gross domestic product in those nations, exceed the investments of those nations in the United States in every case except that of Japan. And, even in Japan, direct foreign investment increased 46% last year as some restrictions were relaxed. In 1987, U.S. citizens’ foreign investments were 18% greater than foreign holdings in the United States.

The new study of the impact of foreign direct investments is the work of the Morgan Guaranty Trust Co. of New York and is published in the June 29 issue of the company’s World Financial Markets newsletter. It estimates that foreign investments of all sorts in the United States will reach $380 billion by the end of the year, a quadrupling in this decade but nevertheless a relatively small share of the economy, equal at the moment to less than 7% of the gross national product.

Recalling the surge of American investments in Europe in the 1960s, which drew warnings from some Europeans but apparently benefited all, the new Morgan study concludes that the foreign investments in the United States are benefiting both investors and the U.S. economy. “They have no genuine drawbacks for either,” according to the study. “New inflows add to U.S. domestic investment, bring improved skills and technology in their training, provide stable current account deficit financing, and ultimately should lead to import substitution and export expansion that will help correct the deficit.”

The report then adds a singularly important thought: “The inflows will outlast the deficit, for they are fundamentally the product of global integration.”

Those pressing for restrictions on foreign investment, or for discriminatory reporting requirements for foreign investors, ignore the importance of the foreign investments. A case in point, cited in the study, is the role of foreign-controlled banks. They provided in 1987 only 5.3% of banking industry employment in the United States but, “Nationwide, they provided nearly one-quarter of all commercial and industrial loans.”

There are adequate safeguards in place for protecting national security. To add further so-called safeguards would undermine an even more important element of national security, the economic viability of the nation, and the ability of Americans to play a vigorous and competitive role in the face of “global integration.”