BizAnalyst Network: Foreign Investment IS Vital to the U.S. Economy

Thursday, March 30, 2006

Foreign Investment IS Vital to the U.S. Economy

One thorny issue confronting this country is that foreign money is looking elsewhere as the U.S. dollar slips against the euro and the Japanese Yen. Recently, the U.S. Congress made it very clear that it is paranoid about foreign investors, especially Arabs, even if they are our allies.

The House panel voted unanimously to block a Dubai-owned firm�s plan to acquire the right to manage terminals at several major U.S. seaports. The House Appropriations Committee voted 62 to 2 to amend an emergency spending measure with language that would effectively bar Dubai Ports World from taking over terminal operations from London-based Peninsular and Oriental Steam Navigation Company.

This prompted a general on the Joint Chiefs of Staff to lash out at Congress for interfering with national security. The United States has major naval facilities in the UAE and relies on them to service many U.S. warships. The general implied that if the UAE is secure enough to service U.S. warships then it should be able to service U.S. ports.

Many are concerned that the country is entering a new era of protectionism, noting that one of the worst periods in U.S. history was when a wave of protectionism swept through the U.S. at the start of the Great Depression. Senator Smoot and representative Hawley infamously sponsored the Smoot Hawley bill in 1930, which raised tariffs on a variety of products in order to protect American jobs. The rest of the world retaliated and soon we went from a small recession into a major global depression. Unemployment soared and all those jobs that the U.S. saved with Smoot Hawley ironically caused more jobs to be lost.

Even though many politicians preach free trade, Congress is undermining free trade agreements and potentially one of the most important U.S. naval facilities in the Middle East. This could have some serious long-term consequences. For instance, the United States is very dependent on foreign money to help finance this country�s budget and trade deficits. Foreign investors might eventually decide not to bother with the United States and invest elsewhere. This could be devastating.

Of course, the Dubai ports deal isn�t the first time that Congress has interfered with U.S. trade policy. Last year, Congressional bickering helped derail China�s CNOOC bid for Unocal. Even though Unocal sold most of its oil and natural gas in Southeast Asia, Congress concluded that CNOOC�s bid was a threat to the national security of the United States. This is a very dangerous precedent since the U.S. runs a massive trade deficit each year with China. Hopefully, folks in China and the Middle East will not decide to stop investing in the United States.

Some believe that this country needs to start playing nice with our major trading partners because if we scare them away, we might find ourselves with very high interest rates and slipping into a recession due to political stupidity. Throughout the world, the U.S. isn�t alone and should not try to annoy our friends, allies or major trading partners. The thinking is that more trade that the world conducts with each other, the less likely that there will be military confrontations.

Happy Trading.

Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
Visit Jeff�s Forum
Listen to Jeff at www.ProfitStrategiesRadio.com

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