Foreign Investment in U.S. May Do More Good Than Harm

By Passell, Peter | THE JOURNAL RECORD, December 22, 1989 | Go to article overview
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Foreign Investment in U.S. May Do More Good Than Harm


The Japanese are coming! The Japanese are coming! warn assorted congressional Democrats, union leaders and business interests who watch in horror as foreigners - specifically the Japanese - swallow up everything from computer chip makers to the best beaches in Hawaii.

And while the overall impact is still small - Japanese companies own only about 1 percent of the American manufacturing base - they are beginning to make big waves.

One domestic industry, automobiles, has been transformed in a mere half-decade by an influx of Japanese manufacturers and Japanese manufacturing techniques.

Others may follow: In 1987 and 1988 alone, the assets of Japanese-controlled concerns in this country increased by $100 billion.

What critics have not offered, however, is a careful analysis of why anyone should care whether the stockholders of the Fortune 500 carry Japanese passports rather than American, or prefer sushi to sirloin.

Nor are they are likely to find much comfort from the bluntly titled ``Foreign Direct Investment in the United States'' (Institute for International Economics, $11.95), the first cool-eyed assessment of the question.

For while the authors, Edward Graham of Duke University and Paul Krugman of the Massachusetts Institute of Technology, are not entirely sanguine about the growing role of foreign investment, they find no evidence that it is harming American interests.

What is more, they argue that Washington regulators already have sufficient power to cope with any plausible threat.

The standard explanation for the recent sharp increase in direct foreign investment is the trade deficit: Americans bought all those Toyotas; foreigners used the proceeds to buy factories in Kentucky and condos in Trump Tower.

Net foreign investment is indeed the mirror image of the American current account deficit. But much of that investment has been indirect, with foreigners parking their unspent dollars in Treasury securities, bank CDs and the stock market.

And as Graham and Krugman point out, surges in direct investment since the mid-1970s do not correlate with increases in the trade deficit.

Direct investment flows actually fell from 1982 to 1985, years in which the trade deficit went through the roof. And while the trade deficit has stabilized since 1986, direct investment has tripled.

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Foreign Investment in U.S. May Do More Good Than Harm


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