Free Trade?

[Anonymous]

Our presumed ag buyers have become sellers
BY ALAN GUEBERT/For the Lincoln Journal Star

Lawyers are fond of noting there are only three courtroom strategies to pursue in any legal case.

First, if the facts favor your client, argue the facts. Second, if the law favors your client, argue the law. And, third, if neither the facts nor the law favor your client, pound your fist on the table hard and often.

The messy Dubai Ports World deal was table-pounding at its best. The White House, oblivious to the sale until it exploded in its face, kept pounding and pounding until congressional allies trotted to the White House to deliver the clear verdict: "It's over; stop being knuckleheads."

Conservative pundits tried to give the administration a graceful exit by claiming the deal had been sunk by "xenophobes," intolerant Americans who dislike foreigners. The more far-right the pundit, the more far-out the claim, until America was made to be a nation of anti-Muslim bigots.

Oh, hogwash.

The deal fell through because the White House's free-trade-at-any-cost strategy has become too costly for most Americans.

Outsourcing American port operations to a suspiciously insecure and deeply insular Middle Eastern emirate is a bad idea anytime. Period.

The failed purchase, however, gives our leaders a long overdue opportunity to re-examine the White House's bloated, failing and costly free trade strategy.

Unbelievably costly.

According to Department of Commerce data, the current account deficit, the balance sheet of American trade in goods, services and investment, was a record $805 billion in 2005. That's a staggering 20.5 percent more red ink than in 2004.

The trade deficit in just goods and services — forget investments, like the failed Dubai ports purchase — was $725.8 billion, up 17.5 percent from 2004 and easily the sickest trade deficit in American history.

Even more sickly, the U.S. farm sector, reports Commerce, whose ag trade category is a broader measure of farm trade than the Department of Agriculture's, recorded a $4 billion ag trade deficit in 2005. (USDA, however, pegs 2005 ag trade a $4.7 billion winner.)

A breakdown of 2005 trade data by country shows 60 percent of our trade deficit accrued to just five countries. Those five, and the 2005 U.S. trade debt in billions to each, were: China ($210.6B), Japan ($82.7B), Canada ($76.5B), Mexico ($50.1B), and Venezuela ($27.6B).

Interestingly, USDA 2005 trade data shows that while the U.S. continued to run a $1.3 billion ag trade surplus with China, that nation's total food, fish and forestry imports increased 5 percent even as its ag exports ballooned 20 percent.

In fact, China's own 2005 ag trade deficit was just $3 billion ($37 billion in imports; $34 billion in exports) or $1 billion smaller than the Commerce Department's U.S. ag trade deficit.

Imagine that. The nation of 1.3 billion bellies — bellies that just a decade ago were to hunger for American food and fatten U.S. farmers' wallet enough to substantially wean American producers from federal farm payments — is growing ag trade so rapidly that its farm trade balance was less red than ours in 2005.

More importantly, given America's fast exploding current account and trade deficits as well as our steadily eroding ag trade surplus (USDA pegged it at a fat $12.4 billion just three years ago), the facts no longer point to year-to-year blips or out-of-sync trends.

These blips and trends are now reality; a reality built on the increasingly false notion that free trade will boost domestic job creation, reduce foreigners financing our federal budget deficits and, for American food producers at least, increase farm income.

Nothing of the sort has occurred, and nothing on the horizon suggests it will.

Instead, the American trade ledger increasingly is written in increasing amounts of red ink. Our current account deficit will near $1 trillion in 2006; our trade deficit easily will top $800 million in 2006, and U.S. farm program payments are now estimated to top $23 billion this year.

By any measure, our pursuit of free trade has been a bust, and only a knucklehead would continue it.

Alan Guebert is a freelance agricultural journalist. He can be reached at [email protected] or at 21673 Lago Drive, Delavan, IL 61734.

 

[ranch hand]

Mar 19, 9:40 PM EST

U.S. ports debate spurs ownership talks

By MARTIN CRUTSINGER
AP Economics Writer

WASHINGTON (AP) -- The furor over efforts by an Arab company to buy U.S. port operations has focused attention on a little noticed economic fact of life: America increasingly is foreign-owned.

From the ritzy Essex House hotel in Manhattan, owned by the Dubai Investment Group, to the nationwide chains of Caribou Coffee and Church's Chicken, owned by another company serving Arab investors, foreigners are buying bigger and bigger chunks of the country.

The U.S. must borrow more than $2 billion per day from foreigners to finance its huge trade deficits. In 2005, for example, there was a record deficit of $805 billion in the current account, the broadest measure of trade.

Foreigners sell their televisions, cars and oil to Americans and hold dollars in return. Those dollars are invested in stocks, bonds and other assets, including real estate and factories.

Foreigners already own half of the U.S. government's publicly traded debt. As of January, some $2.19 trillion in Treasury securities were in the hands of central banks, including China and Japan, and private investors abroad.

At the end of 2004, the total foreign direct investment in this country - actual factories, office buildings and other tangible assets as opposed to stocks and bonds - came to $1.53 trillion, 8.2 percent more than in 2003.

That investment shows up in all of the 50 states.

In Oakland, Maine, it's a customer service center for T-Mobile USA Inc., which is a subsidiary of German-based Deutsche Telekom. In Glendale, Calif., it's the U.S. headquarters for Nestle, the Swiss-based food and beverage company.

Arab investment has gotten the most scrutiny of late because of the now-withdrawn bid by a Dubai-based company to buy operations at six major U.S. ports. But statistics show that Arab investments represent only a a fraction of the total direct investment in the U.S. by foreigners.

European nations accounted for $977 billion, or two-thirds, of the $1.53 trillion of foreign direct investment, according to figures compiled by the Commerce Department.

By contrast, Arab countries in the Middle East accounted for $9.3 billion, led by $4.7 billion in investment from Saudi Arabia. The United Arab Emirates was second among Middle East Arab countries with $1.8 billion in investments, according to the data.

DP World of Dubai said last week it intends to sell its U.S. operations to an American-owned company. But that has not stopped some members of Congress from seeking to overhaul the way such deals are reviewed by a secretive government panel.

A bill by the chairman of the House Armed Services Committee, GOP Rep. Duncan Hunter of California, would bar foreign ownership of U.S. infrastructure deemed critical to the national security.

"To those who say this is protectionism, I say - America is worth protecting," Hunter said.

Opponents say his proposal would mean the fire sale of billions of dollars of assets now in foreign hands and end up hurting the U.S. economy.

Consider that for more than a decade, French tire maker Michelin has been the exclusive supplier of tires for NASA's space shuttles. DSM, a Dutch company, makes body armor for U.S. troops, while French-owned Sodexho provides meals for the troops at a number of military installations.

Nearly one in five U.S. oil refineries is owned by foreign companies. Foreign companies also have a sizable presence in running power plants, chemical factories and water treatment facilities in the United States.

"People don't understand how integrated the U.S. economy has become with the global economy, how dependent we have become on other nations," said Clyde Prestowitz, president of the Economic Strategy Institute, a Washington think tank.

Some analysts believe such realities are getting lost as politicians try to respond to growing anxiety about the trade deficits, the loss of nearly 3 million manufacturing jobs since mid-2000, immigration problems and the threat of more terrorist attacks.

"We have to be very careful that we don't overreact in the legislative process and enact economic policy masquerading as national security policy," said Todd Malan, head of the Organization for International Investment. The Washington group represents foreign companies that do business in the United States.

To the puzzlement of some economists, the current debate centers on direct foreign investment, the most stable type of investment. Yet the far larger share of foreign investment is in Treasury securities, corporate bonds and stocks.

If foreigners suddenly decided to reduce their holdings of these assets, the dollar could plunge in value, interest rates could soar and stock prices could suffer a big blow.

David Wyss, chief economist at Standard & Poor's in New York, cited the 51 percent share of foreign ownership of the federal government's debt - and that share is rising.

"That strikes me as scary," Wyss said. "When you make yourself so dependent on inflows of capital from the rest of the world, the question is what happens if the inflows slow down."

The amount of federal debt that must be financed each year is climbing because of the budget deficits. On Thursday, Congress acted to raise the debt ceiling - the amount the government can borrow - by $781 billion, to nearly $9 trillion.

Alan Greenspan, the former Federal Reserve chairman, said last year he believed market forces would lower the current account deficit before there were serious disruptions to the economy.

A decline in the value of the dollar against other currencies, including China's, would help by making U.S. goods more competitive on overseas markets and imports more expensive and thus less attractive for American consumers.

Falling global energy prices and stronger overseas economic growth to boost demand for U.S. exports would also help.

"A lot of things will have to come together" to reduce America's need for foreign capital, said Mark Zandi, chief economist at Moody's Economy.com.