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US Restrictions on Foreign Investment are Self-contradictory

Source: Wang Huiyao Date: 2019-04-08

While China is opening wider to foreign investments over 40 years of reform and opening-up, across the Pacific, the United States is allowing itself to be constrained by the “America First” policy and ideological hurdles, putting the brakes on investment from other countries. As a matter of fact, what they are saying no to is job opportunities. By doing so, they are hurting foreign investors as well as the US itself.

In a globalized world, economies are interconnected and interdependent. Now the US is trapped in a conundrum of its own making.

It makes allegations against China in the hope of expanding export, reducing trade deficit, and increasing domestic jobs. In the meantime, it erects barriers to restrict Chinese investment in the US, such as unjustified reviews. Although China has been making consistent efforts to address the trade disputes between the two countries, such a paradoxical approach of the US only serves to undermine the links between the two economies. Less Chinese investment does not mean more American jobs. The US is standing on the wrong side of history, to the detriment of itself and others.

Over the years, Chinese business investment in the US has been playing a positive role in the local economy and job creation. According to joint studies by the National Committee on US-China Relations and the Rhodium Group, Chinese FDI in the US topped USD 15 billion in 2015. Chinese companies have more than 1,900 subsidiaries in the US, running business in 42 American states and employing a total of 90,000. China’s Fuyao Group is a good example of the success of Chinese green field investment in the US. In Michigan and Ohio, part of the Rust Belt most hit by the de-industrialization in the country, Fuyao has invested more than USD 1 billion, employing 4,000 American workers. If the US steps up its restrictions on Chinese investment, the paychecks of these workers will be on the line.

Chinese investment in the US has already been seriously dented by the trade policies of President Donald Trump. Statistics show in the first five months this year, Chinese FDI in the US plunged to USD 1.8 billion, a drop of 92% year on year. According to the 2018 Annual Business Survey Report-Chinese Enterprises in the United States by China General Chamber of Commerce, 60% of respondents are especially concerned with the possibility of the Trump administration slapping high tariffs on imports, and 14% say the Trump administration’s plans to impose higher are likely to cause them to reduce their investment in the US.

The Brookings Institution concludes from an analysis that 2.1 million jobs in 40 American industries will be disrupted by the trade war. The annual report of the National Committee on US-China Relations released on 30 April shows a robust increase of US exports to China in 2017 after two years of decline, creating one million jobs for the country within one year.

There is another self-contradiction in the US policy: the Trump administration claims the US will be more hospitable to foreign investors with its tax cuts and deregulation; but in reality its policy flip-flop has made investors concerned about its trade policy uncertainty. This lack of predictability offsets the positive impacts of its tax cuts, disrupts global industrial supply chains, and adds to business operational costs. Multinational corporations, including Chinese businesses, are now worried about the predictability of the investment environment in the US and its policy consistency in the foreseeable future.

Trump’s frequent change of heart in trade policy and restrictive policies on investment are starting to take the toll on the US itself. Recently, Harley-Davidson decides to move the production lines of several of its models out of the US to offset the rising costs as a result of increasing EU import tariffs. Detroit-headquartered GE has also warned the US government that the trade war forces it to shrink its American payroll because 40% of the cars and trucks it sells in the US are imports. Should Trump continue on his current path, American investment environment will gravely deteriorate, and more American businesses will choose to leave their homeland, taking with them American jobs.

Once a leader of globalization, the US is now acting against the trend of history and economic common sense by restricting Chinese investments. This does not serve China-US relations or its own job creation. It is the people in the US and other countries that will bear the brunt. Time will show this path leads nowhere.