Op-Ed | July 14, 2021
Biden’s Plans To Rebuild Infrastructure And Alliances Threatened By His Embrace Of Protectionism
Sharp contrasts between President Biden and former President Trump blur into murky consistency when it comes to international trade and investment policy. Both favor tariffs, forced supply-chain repatriation, “Buy American” restrictions, and domestic production subsidies to manage economic and geopolitical outcomes. But if economic dynamism is to make a comeback and the world’s democracies are to respect U.S. leadership again, Biden must distance himself from Trump’s economic nationalism and repudiate those protectionist bromides.
The U.S. economy requires a continuous inflow of capital to replenish the machinery, software, laboratories, research centers, and high-end manufacturing facilities that harness our talents, actualize new ideas, and create wealth and higher living standards. Over the years, foreign companies have satisfied important parts of those investment requirements, delivering state-of-the-art technology and industry best practices, which have fostered the establishment of new and successful U.S. enterprises.
With the world’s largest consumer market, a relatively transparent business environment, a productive workforce, an innovative culture, and deep and broad capital markets to commercialize that innovation, the United States has enormous advantages in the global competition to attract and retain investment from the world’s best companies.
And it shows. According to the Organization for Economic Cooperation and Development, the United States is home to 26% of the global stock of foreign direct investment (FDI)—the largest of any country by far. China comes in second with less than 8%.
“President Biden seems to want to reassert U.S. leadership and repair the reputational damage caused by his predecessor’s nationalist economic policies. But Biden’s own affinity for protectionism, which lurks in the background of his domestic economic programs, isn’t helping that cause, and changing the branding of economic policies from “America-First” to “Worker-Centric” hasn’t fooled anybody.”
Most U.S. FDI comes by way of foreign companies acquiring U.S. businesses—or expanding their U.S. operations. These “majority-owned” U.S. affiliates of foreign companies (MOUSAs) contribute disproportionately to U.S. economic performance. Though they represent only about 1% of all U.S. businesses with payrolls, MOUSAs account for 6% of U.S. employment, 7% of U.S. GDP, 15% of U.S. business revenues, 15% of U.S. business R&D expenditures, and 24% of U.S. exports. Moreover, MOUSAs generate 14% more value-added per worker than the U.S. private-sector average, which helps explain why they compensate their employees at a 20% premium to the U.S. private-sector average ($82,643 v. $68,888 per year).
In the manufacturing sector, MOUSA’s account for 17% of R&D expenditures, 21% of GDP, 22% of jobs, 33% of revenues, and they own 34% of the capital stock. Still, those significant contributions understate the importance of MOUSAs to the economy. MOUSA’s inspire domestic firms to perform better, while generating important spillovers in technology, corporate governance, and workplace management, including practices intended to achieve social equity and environmental sustainability. Exposure to new ideas and techniques tends to make companies more efficient and more pioneering.
Among the goals of Washington’s emerging infrastructure plans are to repair highways, rebuild bridges, upgrade ports, renew the electricity grid, greenify energy and transportation systems, deliver broadband to underserved Americans, and improve 5G and cybersecurity infrastructure. Do you know which companies are especially good at green projects, transportation infrastructure, broadband distribution, and smart city design? Those headquartered in Europe and Asia, where governments have been investing large sum in these kinds of public goods for a long time.
MOUSAs such as BAE Systems, Garmin, Honda, Siemens, and ST Engineering have all helped their home countries and others achieve progress toward sustainable infrastructure objectives, including clean energy generation, electric transportation, and digital infrastructure design and construction. U.S. companies have a lot to learn from these intrepid firms, which are often best in class and can provide expertise, guidance, and technology.
But these foreign-headquartered companies with substantial U.S. footprints may not be able to participate in the U.S. infrastructure buildout, other procurement projects, or even traditional private-sector transactions because their supply chains may not comport with increasingly restrictive Buy American rules and discriminatory industrial policies, which favor companies with full U.S. pedigrees.
Too many politicians consider government procurement projects, such as those to be financed from the proposed $600 billion (bipartisan) and $3.5 trillion (Democrat-only) infrastructure bills, to be jobs programs or handouts for their favorite supporters, rather than real investment in public goods, even though limiting the supply of materials and service providers only ensures that taxpayers get less (and lower quality) infrastructure at higher prices. What’s more is that the same MOUSAs that would be excluded from these projects operate in every U.S. state and are among the largest employers and taxpayers in scores of congressional districts. They create and reinforce real connections—a commonality of purpose—between the United States and other countries.
President Biden seems to want to reassert U.S. leadership and repair the reputational damage caused by his predecessor’s nationalist economic policies. But Biden’s own affinity for protectionism, which lurks in the background of his domestic economic programs, isn’t helping that cause, and changing the branding of economic policies from “America-First” to “Worker-Centric” hasn’t fooled anybody.
At a recent investment summit hosted by the U.S. Department of Commerce, the Biden administration offered a statement welcoming continued foreign direct investment into the United States. But foreign investment is a prize that must be earned. For President Biden’s message to be truly meaningful, he should waive all Buy American restrictions and assure foreign companies that they will not face discrimination from emerging industrial policies or mandates to nationalize supply chains. Of course, the ultimate beneficiary will be the American public.