Foreigners Buying It : Weak Dollar, Deficits Put U.S. on Sale
A famous American tire company sells off its global factory network to the Japanese.
A Canadian developer stalks one of America’s premier retailers, throwing the company’s plans into turmoil.
British, Germans, Japanese and others enjoy a U.S. shopping spree--loading up on companies, real estate and other investments at what seem like fire-sale prices.
“I’m sitting in my office in Chicago looking at the new AT&T; building, which is being financed by a Japanese company,” Gavin R. Dobson, vice president of the Kemper International Fund, observed. “It’s currently at about the 50th floor--and rising.”
Overseas Landlords
As the new office building creeps upward, so does awareness--and concern--about a startling change in the U.S. economic landscape. Increasingly, Americans are getting their paychecks from companies based on other continents. They owe rent to landlords overseas. And they are buying more products made in factories here that ship the profits home to Europe and Asia.
A single, extraordinary day last week provided three examples of the accelerating foreign influence.
Chicago-based Firestone agreed to sell its factories to Bridgestone Corp. of Tokyo for $1 billion. Federated Department Stores, which owns Bullock’s, I. Magnin and Bloomingdale’s, put its 114 Ralphs and 15 Giant supermarkets on the block, in an effort to dodge an uninvited $5.8-billion takeover by a Toronto real estate developer.
Meanwhile, the Bank of Tokyo was agreeing to buy Union Bank of California for $750 million. But that deal did not expand foreign ownership in the United States; the Los Angeles-based bank already was owned by the British.
“Foreign money is changing the face of America, the lives of Americans and the nature of our political processes,” Martin and Susan Tolchin argue in their new book, “Buying Into America.” The Tolchins say many of the questions about foreign investment remain unanswered, but they caution that its “impact is only beginning to be appreciated.”
Just as powerful U.S. multinational corporations have roamed the globe and been accused of exploiting other countries, some of those same other countries now flex their growing economic muscle in the United States. Foreign investment in the United States--including stocks, bonds and other financial assets--totaled $1.3 trillion, as of Sept. 30, based on the latest preliminary data from the Commerce Department.
Buying Up Factories
Although there is no simple way to determine what percentage of U.S. assets that represents, economists are paying special attention to a fast-growing part of that stake: Foreigners--queasy about volatile financial markets--are buying American factories, land, office buildings and other businesses as never before. With the help of a weaker dollar, which makes U.S. assets cheaper to buy, and eager for access to the U.S. marketplace, foreigners increased these so-called direct investments to $235.5 billion in late 1987 from $209.3 billion in 1986.
The soaring numbers raise bewildering questions for a nation that used to be more a giver than a taker when it came to foreign investments: Why is America the magnet for all this foreign-controlled wealth? Is its arrival good or bad? And does the growing overseas stake in U.S. assets raise legitimate issues, or is such concern narrow-minded and hypocritical?
“For 40 years, we argued to all the countries where we were building factories that it was good for them,” said Deborah Allen, president of the Claremont Economics Institute. “Now the shoe is on the other foot.”
Indeed, the United States is the world’s No. 1 target for foreign investment, according to a new report by Claremont, a private consulting firm near Los Angeles. The onrush of money takes the shape of shiny assembly plants, such as the new forklift factory that Komatsu of Japan completed in Orange County in October.
Bare-Fisted Takeovers
And, it comes in the form of bare-fisted takeovers, such as when Blue Arrow of England last year conquered Manpower Inc.--the world’s largest temporary personnel firm. “They’re buying chemical companies. They’re buying textiles. They’re buying machinery,” Allen said. “It’s all spread out.”
Byron R. Wien, U.S. investment strategist for the Morgan Stanley investment firm in New York, said, “Foreigners salivate over the market because it’s so large. The fact that you can buy established names like Firestone, using inflated currencies, is irresistible.”
Wien was referring to one of the key reasons that foreigners are buying and building here with such enthusiasm: the dollar’s three-year plunge in value, relative to currencies from Japan and Europe. The change has made it cheaper for those countries to produce items in the United States than to export them here; it has also slashed their cost of buying existing U.S. facilities.
America’s trade deficit has helped pay for the shopping spree. This country’s huge appetite for imports has meant great quantities of dollars moving into foreign hands. “One way of looking at it is (that) they have all these dollars left over from their giant trade surplus with the United States, and they have to do something with them,” said John H. Green, vice president for international forecasting at the WEFA Group, an economic consulting firm in Bala-Cynwyd, Pa.
Want Market Access
Moreover, foreign executives are mindful that America remains the world’s most lucrative marketplace, and they want to preserve their access to it. When foreign businesses employ Americans and produce items in the United States, rather than bringing in imports, they ease pressure for trade restrictions. “As I travel around the world, I detect a great nervousness about the outlook for U.S. trade policy,” John H. Makin, a resident scholar at the American Enterprise Institute in Washington, observed.
The Reagan Administration generally endorses the idea that nations should keep their borders open for such investment, but not all Americans take such a laissez-faire approach. “What other world power allows such a significant portion of its industrial base to be bought up by other countries?” asked Linda J. Hoffman, a vice president with the Automotive Parts and Accessories Assn. in Lanham, Md.
Fourfold Increase
Her own industry provides an interesting example: More than 200 Japanese-owned auto parts plants have popped up throughout the United States to assemble and manufacture door locks, windshield wipers, seat belts, headlights and other items--a fourfold increase in the last few years. They now employ 28,000 Americans--total industry employment is over 1 million--but, by some estimates, this growing segment will generate up to half of the industry’s sales by 1990.
Such success can create tensions. “When you have Japanese companies coming in abundance and taking up a share of a non-growing market, it’s at the expense of American companies already here,” Hoffman said.
Japanese Under Pressure
The Japanese are enduring pressures of their own, because the yen’s rising value has slashed the profitability of sending finished goods from Japan to America. “It just became much more costly to import forklifts,” said Douglas W. Nuttall, controller of Komatsu Forklift (USA) Inc., which has expanded its Orange County facilities in order to assemble 200 to 250 forklifts a month.
Although Japan’s moves in the United States get wide attention, its $28 billion in industrial investments here actually puts it in third place behind two countries with much longer histories of U.S. activity: the British, with $64.5 billion, and the Dutch, with $49.8 billion.
But the Japanese, who historically have avoided investing outside their borders, have accelerated their role dramatically, increasing their U.S. stake almost sixfold since 1980. Japanese firms last year announced 94 U.S. acquisitions worth a total of $5.9 billion, up from $2.7 billion in 1986, according to Ulmer Bros., a New York investment banking firm. Such figures may significantly underestimate the number and size of purchases because so many deals are made without fanfare.
“They (the real figures) are much larger, no question about it,” Eric H. Twerdahl, a managing director of the firm, said. “But nobody has a way to keep tabs on it.”
There are few agreed-on statistics to put the foreign ownership in perspective, but it has obviously become important in more than a few areas. Kemper’s Dobson estimated, for example, that foreigners may own as much as 40% of the U.S. pharmaceutical industry, 30% in chemicals, 25% in kitchen appliances, 25% in cosmetics, 20% in tobacco and 15% in automobiles.
Foreigners have invested more than $78 billion in U.S. manufacturing, $34 billion in the petroleum industry, $34 billion in wholesale trade, $23 billion in real estate and $16 billion in the insurance industry, according to government statistics that document the boom. The overseas stake in manufacturing, for example, has more than doubled since 1980.
Cause for Concern?
Is any of this cause for concern? Are Americans quietly losing control of their destiny as increasingly important financial decisions are dictated from overseas? Most experts say that, for now, at least, the answer is no.
Some warn, however, that a worrisome loss of U.S. sovereignty is possible if imbalances in the world economy--aggravated by America’s deficits in trade and the budget--are not resolved. The imbalances mean that this country continues to need vast amounts of foreign capital to pay its debts, capital that takes the form of foreign investments here. They mean also that the dollar’s value may plummet once more, an event that would surely intensify the trend by making U.S. assets seem even cheaper.
Unless these problems are solved, some observers caution, foreign ownership could escalate to the point where the United States loses control of high technology and other industries that are vital to its prosperity and security. “If we don’t do something about our foreign borrowing, our budget and trade deficits and the future potential pressure on our currency, there will inevitably be a problem,” Felix G. Rohatyn, a partner in the New York investment firm of Lazard Freres & Co., warned.
In a sense, Americans will help determine whether the foreign investment is good for the country by the way they handle the new-found money, economists say. In other words, are they steering it toward long-term economic growth or squandering it on short-term purchases? The answer is murky, but many analysts fear it is the latter.
Money Going to Imports
Citing the current effort of a British conglomerate to take over a U.S. insurance holding company, Dobson asked: “If all the shareholders of Farmers Group get their $4.2 billion from BATUS, what’s going to happen to that money? My guess is it’s going to be spent--probably on imports.”
Yet there are some who maintain that the problem comes with a built-in circuit-breaker. Their view: As the dollar settles to a level at which American industry is competitive, the trade deficit will ease, and Americans once again will invest more abroad than foreigners invest here. Because of certain trends in the U.S. trade figures, some argue that the day is not far off.
“Inevitably, it will move back the other way,” David M. Jones, chief economist with Aubrey G. Lanston & Co., a securities firm in New York, predicted. “We’ll be the ones buying the factories and hiring the workers in foreign countries. We’re probably already starting--at a time when the (worried) feeling about foreign ownership in the United States is greatest.”
