Congress Awash in Populist Legislation
An unprecedented raft of bills to control foreign investment in the United States is before Congress, and international business groups call it a sign of a mounting backlash against their role in the American economy.
The populist sentiment follows a huge surge in the past decade of foreign purchases of U.S. businesses and real estate. Foreign investment has skyrocketed in the last 10 years to $401 billion, from only $89 billion in 1980.
As a result, Congress this year is likely to impose higher taxes and tougher reporting standards on foreign investors, said Bradley Larschan, an international lawyer.
“It is open season on foreign investors right now,” said Larschan, who represents the Assn. for International Investment.
The group predicts Capitol Hill fervor to control foreign buyouts of U.S.-based firms will heat up even more in 1991, especially if trade relations with Japan deteriorate.
This year a record 21 bills are before Congress. Moves to collect more taxes from foreign investors are expected to pass because members of Congress, faced with a huge U.S. budget deficit made worse by the Gulf crisis, need politically painless ways to raise money.
As one official at a European bank put it, “Foreigners don’t vote.”
But such moves could backfire, said a New York investment banker. Protectionism discourages the European Community and Japan, both growing markets for U.S. goods, from dismantling their barriers to American investment, he said.
And the irony is, say the bills’ opponents, that patriotic-sounding politicians rally against the very groups who helped fund the current record peacetime expansion of the U.S. economy.
“If they (foreign investors) decided overnight that they were going to buy no more debt, we’d be in real trouble,” said James Kenworthy, an international trade and investment lawyer.
Foreign investors more than tripled their purchases of publicly held U.S. government debt to $393.9 billion by last year from $120.3 billion 10 years earlier, according to the Office of Management and Budget.
Dealers say this foreign willingness to buy U.S. Treasury issues--needed to finance the burgeoning budget deficit--helped moderate U.S. interest rates.
Similarly, foreign banks were vital players in the latter days of corporate America’s leveraged buyout craze. It was Japanese banks’ reluctance to join the $6.79-billion buyout of United Airlines parent UAL Inc. last fall that led to the deal’s collapse.
But supporters of monitoring or curbing foreign investment warn of economic colonization and the selling of the nation’s birthright. Their primary concern is foreign takeover of U.S. industries deemed vital to national security.
For example, a recent government report said that U.S. manufacturing of silicon wafers, basic elements in semiconductor chips crucial to the defense industry, is 92%-controlled by foreign firms.
Rep. Doug Walgren, (D-Pa.), who is sponsoring a bill to impose tougher reporting requirements on foreigners seeking to buy U.S. companies, said 13% of the U.S. manufacturing base already is foreign-owned.
“We face nothing less than an uncontrolled hemorrhage of our economic lifeblood,” Walgren said at hearings in June.
“America must ask itself if its current economic policies are the equivalent of eating the seed corn of future prosperity,” said Sen. James Exon, (D-Neb.).
Exon is co-sponsor of a bill, given a high chance of passage this year, that would allow the Census Bureau to share its confidential industrial data with the Commerce Department’s Bureau of Economic Analysis. It is intended to improve the quality of U.S. data.
Another proposal expected to attract hot debate and possibly pass this year would broaden the Exon-Florio amendment, which allows the President to halt a foreign takeover deemed a threat to national defense.
