Foreign Investment Is Not A National Security Threat
“It is simply silly to worry that a foreign firm would buy production facilities in the United States and then deny American buyers access to the output.”
To note that Washington’s policies often contradict each other is as commonplace as announcing that the sun rises in the east. Nonetheless, some instances are general enough and egregious enough to warrant a special look. Such contradictions were on full display a few weeks ago when the White House blocked Nippon Steel’s acquisition of U.S. Steel. Here we have a government eager to subsidize the construction of semiconductor manufacturing in the United States—whether by domestic or foreign actors—but mortally afraid of the “security” implications of a foreign firm willing to pour its own capital into and expansion of this nation’s ability to produce steel. This sort of nonsense thinking about foreign investment is not only inconsistent but also risible.
When the White House blocked the steel deal, it emphasized the reliability of this economy’s “supply chains.” It also mentioned “national security” concerns from “foreign ownership.” Yet, the deal reached by Nippon Steel and U.S. Steel thoroughly answered all such matters. Nippon planned to lay out $14.9 billion for a failing company with a market capitalization of less than $10 billion that is otherwise headed toward bankruptcy with all the attendant cutbacks and job losses. That move alone would have saved the operation and injected over $4 billion into this country’s economy.
But that is not all. As a special appeal to steel workers, Nippon offered job guarantees and a pledge to honor all existing contracts, including those with the United Steel Workers (USW) union. To quell any concerns in Washington about foreign ownership, Nippon offered the government a supervisory role on the board and a veto on any decision to cut back on production capacity. Far from threatening supply chains, Nippon all but guaranteed that it would sustain steel production at its U.S. facilities at current levels or greater. Nippon went a step further, pledging to strengthen both the company and the industry with a $2.7 billion investment in modernization.
Beyond the explicit assurances of this deal, concerns about “supply chains” and “national security” are almost always misplaced with foreign investment inflows. It is simply silly to worry that a foreign firm would buy production facilities in the United States and then deny American buyers access to the output. The firm might as well set fire to the purchase amount. Certainly, a new foreign owner has no ability to move the factories or mills out of Pennsylvania, Indiana, Ohio, or wherever and bring them home. Nor is ownership sovereignty. Washington, in a national emergency, could dictate how the foreign-owned facilities are used, no matter what the overseas management wants. Inward foreign investment almost always tends to enlarge this economy’s productive capacity and add to employment. It is the outward flows that make “supply chains” more vulnerable and that open American-owned facilities to the whims of foreign powers.
To be sure, foreign purchases of a broadcaster could raise national security concerns over the use of propaganda. The purchase of high-technology operations or defense contractors, with all their secrets, might also raise legitimate security questions. However, with steel and the vast majority of everything else produced in the United States, these considerations simply do not apply.
Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New York-based communications firm. His latest books are Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live and Bite-Sized Investing.
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