Chinese Purchases of U.S. Companies--Posner 's Response to Comments

Many comments imagine scenarios in which, the comment argues, foreign purchase of a U.S. firm would harm the United States. One comment asks whether I would favor allowing Iran to purchase Boeing. The answer is "no," because Boeing is a defense contractor and foreign nations should not be allowed to purchase companies that do highly classified defense work, unless the companies agree to spin off the defense-related parts of their business to U.S. firms. Parenthetically, I do not think that Iran poses anywhere near as great a long-term threat to the United States as China does. China may within a few decades become as powerful as the United States, and both China and the U.S. are Pacific powers. Iran is not a potential superpower and Iran and the United States do not share an ocean. Another comment suggests that if China owned Unocal it might order it to export all its U.S. oil production to China, and then we would have to buy more foreign oil and so we would become even more dependent than we are on foreign oil nations, many of which are unstable or hostile. But if we are worried about our dependence on foreign oil, forbidding foreign purchases of U.S. oil producers is an extremely oblique response compared to, for example, imposing higher gasoline taxes, which would reduce demand for oil and hence for imported oil. Another comment states that even if China had trillions of dollars invested in the United States, this would not inhibit it from invading Taiwan. Well, it would certainly increase the cost to China of such an invasion! Finally and ingeniously, one comment suggests that if China had bought Unocal it could have infiltrated spies into the United States in the guise of oil workers and managers and also exert malign political influence on U.S. government policy. The first concern can I think be dismissed; China has sufficiently extensive business relations with the United States already to be able to plant as many spies in this country as it wants to, and it would certainly not replace more than a tiny fraction of Unocal employees (if that) with Chinese; nor would we permit it to do so. The second concern has somewhat more merit. Although foreigners are not permitted to make contributions to American political campaigns, in the 1990s the Chinese apparently did make some indirect contributions, and conceivably American middle and upper management of a foreign-owned company might be inclined to make contributions or provide other support to politicians who favored the nation that owned the company. I have never heard of such a thing, however, and I am skeptical that Americans working for a company owned by a nation such as China with which the United States has somewhat tense relations would seek to aid that nation--or even would find a politican wishing to do so for the manager to support. Such a politician would be (moviegoers will recognize) a true Manchurian Candidate!

Comments

[David]

I agree with Posner that Iran should not be allowed to purchase Boeing. However, I do not agree with this:

"I do not think that Iran poses anywhere near as great a long-term threat to the United States as China does. China may within a few decades become as powerful as the United States, and both China and the U.S. are Pacific powers. Iran is not a potential superpower and Iran and the United States do not share an ocean."

Posner's analysis displays an outdated, cold-war worldview. The greatest threat to the U.S. these days does not come from another "superpower," and especially China - it seems unlikely to me that China is bent on world domination. China's territorial ambitions seem limited to Taiwan - a problem, to be sure, but not really a threat to the U.S. China seeks to be an economic superpower, which we should welcome, not fear, so long as it plays by the rules of the global market.

Iran, on the other hand, is run by religious extremists bent on regional domination, if not world domination. Iran supports a variety of terrorist groups and is likely seeking to develop nuclear weapons. If Iran shares nukes with its terrorist clients, that is definitely something to fear. Unfortunately, the Bush administration cried "wolf" on this point regarding Iraq, and now no one will believe the U.S. if we make the same argument about Iran, even though it is far more valid.

[Martin]

Not long ago the UK saw advanced negotiations on MGRover. Markets speculate on discussions between Italian Fiat and Chineese potential buyers.

I just wonder what the effect on US consumer confidence would be if China seriously made a bid on Ford or, worse even, GM - ex defence relevant bits.

After all, those companies are, while emblematic for the pride of nations (imagine what "Mercedes" or "BMW" means for Germans), those two companies are not valued at inaccessible levels nowadays.

[Seth Ayarza]

I did a bit of a check up on Aristedes Rare-earth metals comment. Essentially he brought up the concern that Unocal had access to sites that had unique and rare military resources (Uranium...plutonium etc.), stuff that is used in tank shells, missiles, nukes etc.

I now see it can be dismissed after a bit of research. Although the United States is one of the major areas in which these rare-earth metals can be found, China is also one of the top producers as well. So, if Unocal got bought it probably wasn't for more rare-earth elements.

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