The Foreign Investment Debate: Opening Markets Abroad or Closing Markets at Home?

By Cynthia A. Beltz | Go to book overview

4
Not All Investment Is the Same

Clyde V. Prestowitz, Jr.

The debate over investment policy is really an extension of the continuing trade debate, and of the "rocky coast" argument in particular. Also known as the unilateral free trade theory, this argument contends that if your trading partner is stupid enough to put rocks in his harbor such that he cannot import goods, you should not put rocks in your own. Trade, we are told, is invariably good. Even if your trading partner is unenlightened and still protects his workers, you should not be so backward as to do that yourself.


Composition Matters

The fundamental issue is not whether trade is good, but rather what type of trade or investment is good for the economy. The laissez-faire theory assumes that the structure of the economy and the composition of trade flows do not matter. In Washington and elsewhere, for example, some still believe that it does not matter for long-term productivity and economic welfare whether a company makes computer chips, wood chips, chocolate chips, or potato chips. But if it really does not matter what the economy produces, because all goods have essentially the same economic impact, then the discussion about the conditions of trade and investment is nonsense. Any discussion about trade barriers and unfair trade is a waste of time.

Consider the aircraft industry and the long-running dispute between the United States and Europe over Airbus. Central to that dispute is the assumption that it matters whether or not we make aircraft in the United States. If we did not hold that view, we would not be concerned with the European subsidies of Airbus. These subsidies allow the Europeans to sell aircraft to the American airlines below cost. According to the unilateral free trade argument, this arrangement should be treated as a gift to American carriers and pre

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