Yes, Of Course We Should End the Cuban Embargo

My latest at The Federalist:

Communist-hating lovers of liberty have offered myriad reasons to oppose the current Cuban embargo (see, for example, here and here), but today I want to focus on the most basic: over the last two decades, the United States government has utterly failed to justify its forcible, legislated ban on Americans’ freedom of travel, contract, and commerce. Because we live in a country of natural rights and limited, constitutional government, the state alone bears a heavy burden of proving that its restrictions on individual liberty are in fact warranted. In the case of free trade, and especially freedom of movement, this means that there is a strong presumption in favor of Americans’ right to freely travel to wherever they want, and transact with whomever they want—one that may only be overcome where the state establishes a compelling interest in prohibiting or limiting those actions.  

Read the whole thing here.

Lazy, ctd.

Earlier this week, I pointed out some inconvenient facts regarding President Obama's recent allegations of American laziness in the global marketplace.  I focused on the Obama administration's lackluster pursuit of trade and investment liberalization, mainly through FTAs, but the editors at Investors Business Daily have gone one further by pointing out several very-specific examples of the White House's outright hostility to foreign investment:

The Obama administration has a record of making life miserable for foreign investors that put their capital on the line to create jobs in the U.S.

Politically wedded to special interests such as Big Labor, White House officials have hurled scurrilous charges against foreign companies and muscled others in ways no domestic company would tolerate.

Foreign investors also have been targets of punitive regulations disguised as "patriotism" and had contracts kicked out from under them. Now the president would have everyone think the U.S. is merely asleep at the wheel in attracting investment from abroad. In reality, it's a different story...

Exhibit 1: In 2010 Japan's Toyota was humiliated over a safety issue. It wasn't enough to let the regulators deal with accusations about Toyota's brake pedals — as Ford and GM had been over comparable problems. The Obama White House had to publicly shame Toyota....

Exhibit 2: U.K. oil giant BP was put through a similar wringer after the Gulf oil spill of 2009. Instead of treating BP as a domestic company, Obama proudly announced he had his "boot on the neck" of the British company and, in a move of questionable legality, demanded $20 billion....

Exhibit 3: In 2009, Obama signed off on the Democratic Congress' special "Buy American" provisions in the $900 billion stimulus package, shutting out foreign investors for U.S. government contracts. The language was all about "patriotism," but it signaled that the U.S. wasn't welcoming foreigners. The same year, Obama also refused to lift the Jones Act in the wake of the Gulf oil spill. Foreign nations' offers of expertise in cleaning up a dangerous problem were dismissed due to the 1930's protectionist act that was designed to protect union jobs....

Exhibit 5: European jet maker EADS won a $35 billion Pentagon contract for tankers in 2010, only to see it pulled and given instead to rival Boeing — whose congressional representative said it would bring 50,000 "American jobs" to unionized Washington and other states. EADS's proposal would still have created 40,000-plus U.S. jobs — but in right-to-work Alabama....

[W]ith Asia and Latin America booming and in a position to invest abroad, and Europe in far worse shape than the U.S., the U.S. should be seeing double-digit foreign investment gains, as it did in the 1990s. Instead, foreign direct investment — which totaled $2.34 trillion in 2010 — continues to grow at about the same meager 6% rate of the last decade.

Ouch.  I had already mentioned in my blog post IBD's Exhibit 4 (on NAFTA trucking), and I'd be remiss not to add the very recent and very topical Exhibit 6:

China's largest solar power plant developer has put a planned $500 million U.S. project on hold over an anti-dumping trade dispute, the company's general manager said on Monday.  CECEP Solar Energy Technology Co Ltd, a unit of the state-owned giant China Energy Conservation and Environmental Protection Group, said a planned installation of China-made panels to generate solar power in California, New Jersey and Texas would be made uneconomic by U.S. anti-dumping moves.

"If the solar panel prices increase by, say 30 percent, in the United States, following the move, then we would certainly drop the plan because there's no profit to be made," Cao Huabin, the general manager of CECEP Solar Energy, told a news conference in Beijing.

Prices of solar panels in the project, which account for about 70 percent of the costs, are set to jump if Washington imposes duties on imported Chinese products that U.S. rivals say breach agreed global trade rules...

Seven solar manufacturers led by the U.S. arm of SolarWorld AG last month asked Washington to impose hefty duties on China solar imports. European firms may ask for similar action.

Now, this isn't to say that the issue of China and FDI is easy.  Indeed, there are very real national security and other issues that preclude unfettered Chinese investment in the US private sector.  AEI's Claude Barfield elaborates on these issues in a great new paper that focuses Chinese telecoms giant Huawei's failed attempts to invest in the United States.  Barfield also offers up a few solutions to Huawei's problems and the difficult issue of Chinese FDI more broady.  He recommends, among other things, that:

• The US government should make the investment/security-vetting process (the so-called CFIUS process) more transparent and should take steps to formulate and publicize a set of guidelines that would explain the rationale behind individual investment decisions. As a number of intelligence officials from several administrations have concluded, Committee on Foreign Investment in the United States (CFIUS) officials can provide more detail on the sources of their security concerns without jeopardizing US intelligence efforts. At a minimum, the results of the White House task force initiative cited above, as they pertain to Huawei, should be made public.


• Efforts to expand CFIUS to cover normal business contracts or joint research and corporate ventures should be resisted. If acceded to, moves to expand CFIUS, whether stemming from congressional sources or private competitors, would lead to an undesirable politicization of the process through an adverse intermingling of national security and private competitive concerns and motives.


• Beijing should renounce trade-investment-distorting credit subsidies that aid Chinese companies competing in overseas markets. It should agree to adhere to the guidelines and specific restrictions set out in the 1978 Organisation for Economic Co-operation and Development (OECD) arrangement on export financing and the 1991 Helsinki Package that clarified rules with regard to tied aid to developing countries.  Pending this action, Huawei would be well advised to agree to be bound by OECD rules when accepting subsidized credit arrangements for its customers.

I completely agree.  (And be sure to read the whole Barfield analysis here.)  Our existing investment/security vetting process is messy and ripe for abuse by domestic companies seeking to keep their competitors out of the US market.

So, yes, foreign investment in the United States is quite important for future economic growth and employment, and there are very real obstacles to reaping the full benefits of that investment, particularly as they relate to China.  But those obstacles have very little to do with American "laziness" and very much to do with our arcane and often protectionist regulatory apparatus and an administration that has been slow to embrace - and at times outright hostile to - foreign investment.

On the Need for International Investment Rules

The dispute in Ecuador between Chevron and certain "environmental" groups - which I've mentioned a few times previously - continues to provide a perfect example of why international investment rules might actually be quite necessary for a large portion of cross-border investment (as I've repeatedly argued).  As you'll recall, these rules have been highlighted by anti-traders as evidence of the horribleness of free trade agreements and international investment treaties.  In short, these folks claim that the investment disciplines provide evil multinational corporations with scary new powers to subvert domestic law via shady international tribunals and thereby enforce their greedy wills on a powerless populace.  (Insert ominous music here.)

On the other hand, people who, you know, actually practice international investment law often defend these rules by stating that, while certainly not perfect and occasionally producing some distressing outcomes, the treaties act as an absolutely essential check on the abuse of developing countries' less-than-robust local courts and legal systems by unseemly groups (and their lawyers) who are seeking to shakedown multinational corporations for millions billions of dollars.  Thus, without these disciplines, many companies would be far less likely to do business in developing countries that desperately need the capital, expertise and, of course, jobs that such business brings.

And speaking of that abuse, let's get back to the Chevron case and catch up on what's going down in Ecuador, first courtesy of HotAir's Jazz Shaw:

American lawyers have been helping the “environmentalist” groups and the government of Ecuador, currently attempting to pick Chevron’s perceived deep pockets. This continues despite the fact that, “Five US federal courts have found evidence that the Ecuador trial has been compromised by plaintiff’s lawyer’s fraud.”

Steven Donziger, attorney for the plaintiffs, was caught on tape and in court obtained documents providing the following memorable quotes,

“Because at the end of the day, this is all for the courts. This is a bunch of smoke, mirrors and (expletive.) It really is.”

“The only language that I believe this judge [in Ecuador] will understand is one of pressure, intimidation and humiliation.”

“This is Ecuador, OK? You can say whatever you want, and at the end of the day, there’s a thousand people around the courthouse and you’re going to get what you want.”

“… the problem, my friend, is that the effects are potentially devastating in Ecuador. (Apart from destroying the proceedings, all of us, your attorneys, might go to jail.)”

“The business of getting press coverage is part of a legal strategy. The business of plaintiff’s law is to make (expletive) money.”

Lovely, eh?

 Shaw also posts the following video which is just must-watch stuff:



Pretty sketchy, eh?  And here's a little more on what's going on stateside with respect to the Ecuadorian plaintiffs' attorney, Mr. Donziger:

For months, Chevron and its lawyers at Gibson, Dunn & Crutcher have been engaged in an unprecedented effort to obtain discovery in the U.S. courts with the aim of discrediting any potential award against the company in the Lago Agrio environmental contamination case in Ecuador. Now, with the Ecuadorian court poised to deliver a judgment that's expected to be in the tens of billions of dollars, Chevron has produced a 207-page complaint in Manhattan federal district court that pulls together the evidence it has obtained into an assertion of a conspiracy to extort a multibillion-dollar settlement from the oil company.

The civil Racketeer Influenced and Corrupt Organizations Act suit names as defendants (among others) plaintiffs lawyer Steven Donziger; two Ecuadorian plaintiffs lawyers; the 47 plaintiffs who purportedly filed the long-running Lago Agrio action in Ecuador; the nonprofit Amazon Defense Front, and Stratus Consulting, which provided expert scientific services to the plaintiffs. The complaint also identifies as nondefendant coconspirators other law firms that have represented the Ecuadorian plaintiffs--Emery Celli Brinckerhoff & Abady and Patton Boggs--and firms that have provided financing for the Lago Agrio suit, including Kohn Swift & Graf, Motley Rice, and Burford Group.

The allegations in the new suit are familiar to anyone who's been following Gibson Dunn's astonishingly productive 28 U.S.C. section 1782 discovery campaign, in which, as Michael D. Goldhaber has discussed in Global Lawyer posts for the Litigation Daily (here and here), Chevron has prevailed in all nineteen of the discovery motions it has filed against individuals associated with the Ecuadorian plaintiffs. The fruits of Chevron's discovery campaign include hundreds of hours of outtakes from a documentary film about the Lago Agrio litigation, as well as virtually all of Donziger's work product--e-mails, diaries, strategy memos, and more--from the Lago Agrio case.

The new RICO suit claims, among other allegations, that Donziger, with early financing from Kohn Swift, drummed up the Lago Agrio litigation with the goal of reaping hundreds of millions of dollars of legal fees. Chevron asserts that Donziger is an accomplished political operative who established a relationship with the Ecuadorian government in order to further the litigation. The complaint details Donziger's alleged efforts to work with Stratus to produce a ghostwritten report for the purported Ecuadorian court-appointed neutral expert, alleged coconspirator Richard Cabrera. It also contains assertions that Donziger influenced Ecuadorian prosecutors to bring criminal charges against two Chevron lawyers who signed an agreement attesting to the remediation of contamination in the Lago Agrio region; and offers evidence that Donziger and the other conspirators schemed to deceive Congress, the U.S. media, and Chevron shareholders about the merits of the Lago Agrio case.

Updates on these actions are available here and here; needless to say, it doesn't look too good for Donziger, and his clients (former clients?) are looking kinda desperate.

But, look, I have no dog in this fight, and maybe the Ecuadorian plaintiffs here have a real case against Chevron.  I have no idea (although the dispute definitely smells funny).  But if the plaintiffs really do have a case, then isn't that also a good reason to for them to secure a judgment from a reputable international investment tribunal and thus remove all doubt as to the merits of their allegations?  Seems like a no-brainer to me.  On the other hand, if their claims really are as baseless and corrupt as Chevron makes them appear, then why on earth would a major multinational corporation ever want to risk investing in Ecuador ever again if its only legal recourse were that snazzy domestic court featured in the video above?  If it were me, I'd avoid that place like the plague.

So either way, it seems that recourse to a reputable third-party arbiter pursuant to reputable international investment rules would benefit everyone involved.

Except skeevy plaintiffs and their lawyers, of course.

Short Article, Big Lessons

From Colombia Reports comes a great article that, on its face, seems to be just a short piece about foreign investment, but actually provides several great lessons about the global economy:

Colombia's largest cement company Argos has bought several cement plants in Alabama, Georgia and South Carolina for $760 million, reported local media Thursday.

Argos Cements bought the plants from the French company Lafarge. Argos entered the US market in 2005 and says it plans to become the fourth largest ready mix producer in the U.S.

Chief Executive Jose Velez said in an interview as reported by Dow Jones "We are conservative in our outlook but we do expect more activity in 2010." Velez also said that he is not worried by the weak dollar or the strong peso.

"Because of the weakness of the dollar most of our inputs are cheaper now ... The net impact of the appreciation [of the peso] is zero at this time."

The purchase, which is still subject to approval from U.S. regulators, is part of an long term expansion strategy aimed at consolidating Argos' presence in the U.S. market.

So what kind of lessons can we draw from these few paragraphs?  Here's what I came up with:

• The obvious benefits of foreign investment in the US economy.  But for Argos' investment, these French-owned cement plants in Alabama, Georgia and South Carolina may have gone out of business, eliminating hundreds of American manufacturing jobs in the process.  Now, let's just hope that those "US regulators" don't foul things up.

• Where all that great foreign investment wants to go.  All of Argos' $760 million investment is going to Right to Work States. i.e., states with laws prohibiting compulsory union membership.  Of course, as I've often noted here, foreign investment in these states - particularly those in the South - is part of a growing trend.  In fact, the empirical evidence shows that RTW states attract more FDI than their forced-unionization counterparts.  Of course, the economic dominance of RTW states isn't isolated to attracting foreign investment.  As Steve Moore and Art Laffer recently noted in a great WSJ op-ed: "As of today there are 22 right-to-work states and 28 union-shop states. Over the past decade (2000-09) the right-to-work states grew faster in nearly every respect than their union-shop counterparts: 54.6% versus 41.1% in gross state product, 53.3% versus 40.6% in personal income, 11.9% versus 6.1% in population, and 4.1% versus -0.6% in payrolls."

• How global supply chains erode the conventional wisdom on trade and currency and make import liberalization increasingly important.  Velez states: "Because of the weakness of the dollar most of our inputs are cheaper now ... The net impact of the appreciation [of the peso] is zero at this time."  This means that his company is importing raw materials from the United States or from countries whose currencies are pegged to the dollar.  Either way, it's a great example of how global supply chains have made old school currency dogma irrelevant, and why a strong currency and the elimination of import barriers are important for intermediate/downstream producers like, oh I don't know, the United States.  Now, if only there were a way for the United States and Colombia to instantly lower the vast majority of their bilateral trade barriers.  Oh, wait.

• The origins of that Colombian investment capital - the US-Colombia trade deficit.  One of the constant refrains here is that trade deficits are not "bad things" because, among other things, they necessarily lead to foreign investment in the United States.  As Cafe Hayek's Don Boudreaux put it, "another name for 'U.S. trade deficit' is 'U.S. capital-account surplus' – that is, inflows of investment funds into America that supply (directly or indirectly) financing for more capital creation in America."  (Mark Perry adds more here.)  In 2010, the United States had a $3.6 billion bilateral trade deficit with Colombia, and now $760 million is coming back to the U.S. as investment in domestic cement plants.  In short, Americans gave Argos and other Colombian firms our dollars, and now they're re-investing those dollars in the US economy.  Suddenly, those trade deficits aren't so scary anymore, eh?

I'm sure I missed something.  Feel free to add your lessons in the comments.

(h/t Monica Showalter)

Monday Quick Hits

It's been a while since I last cleared the decks, so these headlines will go back a couple weeks:

• Former Chair of President Clinton's Council of Economic Advisers Laura D'Andrea Tyson systematically and correctly explains why China's currency policies should not be the focus of this week's US-China Strategic & Economic Dialogue.  (Although it all sounds awfully familiar, if you ask me.)

• AEI's Phil Levy explains the absurdity of the AFL-CIO's opposition to the US-Colombia FTA.

• Unlike most other countries, the United States isn't really interested in Chinese investment.

• Undaunted, Chinese investors are still trying to give us money and jobs, and, fortunately for us, they are occasionally successful.

• The Economist looks at the effect of trade on carbon emissions.

• The US Steel Industry is doing really well these days. (Somebody should tell steel-loving protectionist Reps. Visclosky and Murphy.)

• All of China's currency meddling is pushing the Chinese government to increase the nominal value of its currency.  (Shocking, I know.)

• World Bank study: China will become less trade-dependent over the next decade. (Good writeup of the study here.)

• Chinese study: China's exports will inevitably slow, while its imports will surge. 

• China's one-child policy is creating some serious economic pressures.

• The US-Korea FTA had a pretty ridiculous setback in Korea's National Assembly.  Unfortunately for US exporters, the National Assembly seamlessly approved the EU-Korea FTA a few days later.  (Tick tock tick tock, President Obama.)

• Art Carden explains why the iPad isn't bad for the US economy (and yes, that is apparently a necessary economics lesson for some in Congress).

• US inches closer to allowing Mexican trucks to travel on American roads; retaliatory tariffs on $1.2 worth of US exports remain in place until that actually happens.

• Heritage: The "Age of America" will only end if we let it.

• Steve Horwitz on the pernicious fallacy of the "fixed jobs pie."

That should keep y'all busy for a while. 

Chinese Industrial Policy, ctd.

Last week, I posted an amazing video of China's "ghost cities and malls" which unquestionably demonstrated the myriad problems with the country's centrally-planned economy, despite its eye-bugging growth.  Adding further empirical support to my anecdotal evidence is a great new paper from Heritage Foundation's Derek Scissors which compares the US and Chinese economies and asks "which is bigger [and] which is better."  If you've seen last week's video, Scissors' answer shouldn't surprise you in the least.

After thoroughly analyzing each country's GDP, employment, economic freedom, energy & environment, international trade position, fiscal policies, labor productivity and other factors (and be sure to check out the snazzy charts), Scissors rightly concludes:

The PRC’s rise from poverty due to the marvelously successful market reforms introduced in 1978 has obscured serious economic weaknesses compared to the U.S. These weaknesses have been exacerbated in important ways by renewed Chinese state intervention starting around 2003. America should not lose track of its advantages over China—in wealth but also in natural resources, and in surprising areas such as employment. Most important, the U.S. should not make the error of mimicking unwise Chinese policies, and should instead focus on getting the American house in order.

I couldn't agree more, and have said as much many times here.  Scissors then advises:

To compete successfully with China, the U.S. should:

Limit federal control of lands to defense needs and preservation of natural and cultural phenomena. The Department of the Interior should avoid resource management, shown to distort the economy and reduce prosperity;

Immediately and sharply cut the federal deficit. Congress must ignore claims that deficit spending somehow creates wealth, as it actually forces the nation’s capital toward low returns;
In particular, reduce subsidies of every kind. At this point, energy subsidies are especially damaging; and

Ensure a well-educated and growing labor force. The Departments of Education and Justice should stress immigration transparency and education diversity, where the U.S. has an edge over China.

To encourage mutually beneficial Chinese development, the U.S. should:

Focus on subsidies as the biggest Chinese trade distortion. The Department of the Treasury, the United States Trade Representative, and Department of Commerce should estimate Chinese subsidies for the purposes of reducing them through bilateral and multilateral negotiations; and

As part of these negotiations, should offer to welcome Chinese investment in natural resources in exchange for greater American access to the PRC market.

I agree with all of Scissor's analysis and recommendations, except for this last one.  Not to nitpick, but conditioning Chinese investment in American resource development (e.g., lumber, iron, oil, gas, etc.) on reciprocal access to the Chinese market strikes me as wrongheaded for two basic reasons.  First, such intervention is completely at odds with the paper's strong (and totally correct) free market message.  Indeed, one of the paper's primary conclusions is that the weaknesses in China's economy "have been exacerbated in important ways by renewed Chinese state intervention," yet it recommends American intervention in the US investment market by restricting China's access thereto.

Second, and as I've noted here many times, this kind of reciprocal trade and investment policy  needlessly (albeit implicitly) demonizes foreign investment by casting it as a "concession" that we must begrudgingly give up in order to win access to China's market.  In short, it makes Chinese (and other foreign) investment in the American economy seem like a bad thing, because it depicts China's giving us money (and American jobs and growth) is the price we have to pay to get that sweet, sweet export market.  This, of course, is totally incorrect from an economic perspective, but it's also wrongheaded from a messaging perspective because it teaches the American public to oppose foreign investment.  And I'm quite sure that there are other things that we could use - things we (or our politicians) actually don't want to give up like our agriculture or "green energy" subsidies - as a bargaining chip to gain more access to China's market.

But hey, like I said, that's nitpicking.  The paper's still an excellent effort overall, and well worth your time.

Tuesday Quick Hits

Since I was traveling last week, you might be behind on your reading. Here are some headlines to catch you up:

• NC State University Report: North Carolina ports support more than 65,000 jobs across the state and provide an economic impact of $7.5 billion.

• Doing business in China can really stink for US companies; investor/buyer/seller beware.

• GMU's Russ Roberts absolutely dismantles Paul Krugman's (and others') latest nonsense about the omnipotence of America's "rich".

• Geithner: Chinese inflation is driving the real US-China exchange rate and altering companies' business decisions.  (Yes, this should all sound very familiar.)

• Hyundai and Kia are dominating in Alabama and Georgia, respectively, and bringing American manufacturing jobs with them.  (And Cafe Hayek's Don Boudreaux provides some great additional commentary.)

• In the Solyndra debacle comes further proof that the US government's record on "investing" in green manufacturing is abysmal, and that private (aka "real") investment and government (aka fake) "investment" are two very different things.

• EU-Korea FTA clears its final hurdle in Europe.

• US to China: invest in our debt, not our companies.

• Ikenson: Tony Soprano meets the US antidumping law.  And Simon Lester adds some helpful anonymous commentary. 

Enjoy.

Valentines Quick Hits

Here are a few headlines for your romantic night with that special someone.  Maybe you could even read a few of them to him/her to get in the mood:

• For those of us out there who waited until the last minute and bought our wives some surprisingly-cheap-yet-high-quality Valentines Day roses from your neighborhood Whole Foods (a "fair trade" advocate, by the way), I hope you checked where the flowers were from.  I did: Colombia.  Heritage's Bryan Riley explains that "Americans saved more than $16 million on roses last year thanks to U.S. trade policy toward Colombia.... As Valentine’s Day approaches, with Mother’s Day not far behind, it is a good time to consider the benefits of the proposed U.S.–Colombia Free Trade Agreement not just for U.S. flower buyers but for the Colombian workforce and U.S. exporters as well."

• Don Boudreaux and David Henderson refute Ian Fletcher's ridiculous claim that, while American manufacturing is at an all-time high and remains the world's largest by value, the problem is that the sector just ain't growing fast enough.  Next up, Fletcher will argue that whether protectionism is idiotically self-destructive depends on what your definition of "is" is.  Seriously.

• Keith Hennessey provides a detailed analysis of the President's allegedly pro-trade statements before the US Chamber of Commerce and arrives at a depressing conclusion that some of us have known for a while now: "This sounds like a free trade agenda, or at least a pro-trade agenda, which would be good from a President whose party often leans heavily toward protectionism. The problem is that the U.S. already has trade agreements with Panama and Colombia. The President is in reality saying that he is undoing those deals. He also appears to be saying that 'unprecedented support from … labor [and] Democrats …' is a precondition to further progress on free trade."  Thus, we're doomed.

• Here's a telling update on that sketchy Chevron-Ecuador dispute that I mentioned a few weeks ago (and further proof that third-party dispute settlement of investment disputes is not as horrible and pernicious as some trade skeptics breathlessly allege).  The Hague is still reviewing the case, but the domestic court has ordered Chevron to pay billions.  And guess who really wins big from the domestic ruling: "The court also ruled that Chevron should pay the Amazon Defense Front, a coalition formed by the plaintiffs, an additional 10% in damages, or about $860 million. The judgment says the amount of the damages could be doubled if Chevron doesn't apologize publicly to plaintiffs by advertising in the next 15 days in newspapers in the U.S. and Ecuador.  Pablo Fajardo, an attorney for the plaintiffs, said his team was still reviewing the 200-page document and couldn't give a full opinion until Tuesday. He said that although he didn't rule out the possibility of appealing to ask for a higher amount, the fact that the judge issued a ruling favorable to the plaintiffs was a 'very positive step.'  Last summer the plaintiffs asked the court for $113 billion in damages."  Ahh, social justice.

• The Economist has a fascinating cover story on a new technology called "3D printing" and how it could totally revolutionize manufacturing.  After reading it, ask yourself this: "Is it really smart for the White House to pin the hopes of America's economic recovery on a dramatic increase in manufacturing employment?"

• I kinda pity Randy Erwin, the founder of the "Buy American Challenge."  I mean, the guy seems well-intentioned and, unlike most anti-traders, he's advocating a purely voluntary import embargo (rather than one produced by political lobbying and enforced by government coercion).  Nevertheless, he's still really, really misguided, as Don Boudreaux and Mark Perry demonstrate.

• The NYT reports that "Over the last decade, the [USDA's Market Access Program] has provided nearly $2 billion in taxpayer money to agriculture trade associations and farmer cooperatives. The promotions are as varied as a manual for pet owners in Japan and a class at a Mexican culinary school to teach aspiring chefs how to cook rice for Mexican consumers. Money also went to large farmer-owned cooperatives like Sunkist, Welch’s and Blue Diamond, which grows and sells almonds. Combined, the three companies had over $2 billion in sales in 2009."  Awesome.

• China's now the world's #2 economy (by country).  Razeen Sally explains in the WSJ that, if China ever wants to become a world leader, it needs to ditch the childish protectionism.

• Harvard professor Martin Feldstein provides a laundry list of reasons why the President needs to dramatically lower the corporate tax rate if he's serious about re-invigorating the American economy.  And he drops this little nugget: "Eliminating every loophole in the taxation of domestic corporate profits identified by the administration's own Office of Management and Budget would raise less than $60 billion of extra revenue in 2011, enough to lower the combined federal-state corporate rate to 35%. The U.S rate would still be higher than in every other country but Japan, and a full 10 percentage points higher than the average in other industrial OECD countries."  

• This is hilarious.  (In humor lies truth.)

Happy V-Day, everyone.

Wednesday Quick Hits

Lots of interesting reading over the last few days, so let's spare the pleasantries:

• If you want to know how China's efforts to control the nominal RMB-USD exchange rate lead to serious inflation (and thus an increase in the real exchange rate) read this.  (And then ask yourself this: "Hmm, is this really indicative of a sound economy that will inevitably overtake the United States in the very near future?")  AEI's John Makin has more good data on China's inflation problem here, although I think his solution is a tad simplistic.

• In a great NYT op-ed Harvard's Mark Wu provides three indisputable reasons why China's currency policies aren't the problem for the United States that many, like Sen. Chuck Schumer, breathlessly claim.  My favorite part: "I recently did an analysis of the top American exports to our 20 leading foreign markets, and found little evidence that an undervalued Chinese currency hurts American exports to third countries. This is mostly because there is little head-to-head competition between America and China. In less than 15 percent of top export products — for example, network routers and solar panels — are American and Chinese corporations competing directly against one another. By and large, we are going after entirely different product markets; we market things like airplanes and pharmaceuticals while China sells electronics and textiles."  Cato's Dan Griswold also pens a nice summary on the same issue, and NRO's Rich Lowry broadens the view a little.  [UPDATE: Fresh from Worldtradelaw.net's indispensable trade headlines comes a new CNN report on a debate between Fred Bergsten and Jim Chanos on whether the yuan is undervalued or overvalued.]

• Meanwhile, China's selling US Treasurys again.

• HotAir's Jazz Shaw provides an excellent example in the Ecuador-Chevron kerfuffle of why trade agreements' investor-state protections - such as the mandatory resort to third-party dispute settlement - aren't (as many misguided trade critics claim) pernicious and instead encourage foreign investment (and thus economic growth and, of course, jobs).

• At the request of the Chinese government, "China's five largest banks have pledged to lend more to government-subsidized housing projects in 2011."  What could go wrong?  Oh, right, that.

• Green trade disputes are suddenly a hot topic!  First, Sen. McCain tells Brazilians that US ethanol policies are ripe for a WTO challenge.  Then, Reuters wonders if a "solar trade war" is on the horizon because so many governments are subsidizing the heck out of their solar industries.  Finally, former WTO Appellate Body chair James Bacchus proposes that the US and China negotiate a pre-emptive ceasefire on gree trade disputes in order to avoid a serious conflagration.  If only someone had been warning us about all of these problems for, oh I don't know, the past 20 months or so.  If only....

• The Economist provides our super-cool graphic of the day, which shows that the key to cleaner energy consumption is economic development, not top-down government control.  Shocking, I know:

• The Seattle Times' Bruce Ramsey provides an excellent Korean history lesson which shows that Korean opposition to KORUS and other FTAs is pretty silly.

• Doug Holtz-Eakin, James Capretta and Joseph Antos write a must-read op-ed systematically debunking the liberal/Democrat talking point that repeal of ObamaCare will increase the US budget deficit.

• Finally, this is hilarious, and so is this.

Enjoy!

Monday Quick Hits

There have been plenty more headlines over the last few days, so let's get right to 'em:

• China's contentious policies on exports of "rare earth" minerals lead to the re-opening of (and foreign investment in) directly competitive US operations by the end of 2010.  Three cheers for the free market.  (Now, let's just hope that US protectionists and/or environmentalists don't doom the new operations and the jobs that come with it.) 

• Ecuador's ICSID arbitration win over a US oil company demonstrates, once again, that "NAFTA-style" investment provisions in international agreements aren't nearly the scary menace that anti-traders would have you believe.

• Mexicans can't get their hands on American Christmas Trees because of absurd US protectionism.  Feliz Navidad!

• Caterpillar publicly presses Congress and the White House on 2011 passage of all pending FTAs, not just the KORUS.  We should expect a lot more of this next year.

• So the WSJ editorial board must read this blog, as they hit on both the US-Colombia FTA and those troublesome subsidies for Big Wind that I discussed last week.  (Or I'm just blogging on really common issues.)

• Here's a little something that doesn't pass the laugh test: "Yet the aramid tariffs flew under the radar in trade talks with South Korea. That could be because concerns from the U.S. textile industry were drowned out by several other large U.S. industries that support the new agreement."  Me: Oh, yeah, that poor US textile industry just doesn't have any disproportionate sway over US trade policy.  Rrrrriiight.

• Once again, Rep. Jeff Flake (R-AZ) gives us hope that not everyone on Capitol Hill is a sleazy politician.

• More proof that the prices of most globally-traded goods (e.g., computers) have declined dramatically since 1980, while non-traded services (e.g., haircuts) have actually increased. 

That'll do it for tonight folks.  

Sunday Quick Hits

I'm just back from some business travel, and there's lots to mention, so let's get right to it:

• Ten months of Section 421 tariffs on Chinese tires produce nothing except higher domestic prices and increased imports from other countries.

• New Cato briefer: The Miscellaneous Tariff Bill: A Blueprint for Future Trade Expansion.

• New Heritage briefer: Targeting the Yuan: A Feel-Good but Futile Response.

• Op-ed: Why imports are a boon for the US economy (and another reason why Keynesianism is dumb).

• In response to Krugman's latest China currency column, monetary economist rightly asks if we can revoke PK's Nobel prize.

• Boeing-Airbus dispute: the EU strikes back.

• WSJ editorial board asks an obviously rhetorical question: does Obama or the USW run US trade policy?

• Yet another trade dispute over "green" subsidies: this time Japan goes after Canada's "feed-in tariffs" for renewable energy generation.  You were warned, people.  You were warned.

• Shocker: Dems' anti-china push is based on politics, not economics.

• Excellent NYT op-ed on how visa reform is critical to the future of US global competitiveness.  Me: something China is already doing, by the way.

• Journalist notices that US pols attack China's currency policies to "save American jobs," but they don't seem to care about those same jobs when they block Chinese investment in the United States.

• Breakthrough?  Iowa farmers starting to balk at taking government money.

That should keep you all busy for a while.

On Global Competitiveness, Investment and Jobs

Dismal news arrived last week from the World Economic Forum: the United States has dropped from second to fourth place on the WEF's Global Competitiveness Report 2010-11 - a comprehensive annual survey of public data and the opinions of the world's top business executives.  The report explains why the US dropped (emphasis mine):

The United States continues the decline that began last year, falling two more places to 4th position. While many structural features that make its economy extremely productive, a number of escalating weaknesses have lowered the US ranking over the past two years.

US companies are highly sophisticated and innovative, supported by an excellent university system that collaborates strongly with the business sector in R&D. Combined with the scale opportunities afforded by the sheer size of its domestic economy—the largest in the
world by far—these qualities continue to make the United States very competitive.  Labor markets are ranked 4th, characterized by the ease and affordability of hiring workers and significant wage flexibility.

On the other hand, there are some weaknesses in particular areas that have deepened since our last assessment.  The evaluation of institutions has continued to decline, falling from 34th to 40th this year.  The public does not demonstrate strong trust of politicians (54th), and the business community remains concerned about the government’s ability to maintain arms-length relationships with the private sector (55th) and considers that the government spends its resources relatively wastefully (68th). There is also increasing concern related to the functioning of private institutions, with a measurable weakening of the assessment of auditing and reporting standards (down from 39th last year to 55th this year), as well as corporate ethics (down from 22nd to 30th). Measures of financial market development have also continued to decline, dropping from 9th two years ago to 31st overall this year in that pillar.

A lack of macroeconomic stability continues to be the United States’ greatest area of weakness (ranked 87th). Prior to the crisis, the United States had been building up large macroeconomic imbalances, with repeated fiscal deficits leading to burgeoning levels of public indebtedness; this has been exacerbated by significant stimulus spending. In this context it is clear that mapping out a clear exit strategy will be an important step in reinforcing the country’s competitiveness going into the future.

Unfortunately, it gets worse.  Not mentioned in the WEF report, but shown in the accompanying US factsheet, are the horrible United States' rankings in "burden of government regulation" (49th) and "transparency in government policymaking" (41st).   According to the Washington Post, these regulatory burdens, along with access to credit, were the top problems that global CEOs see in the US today.  Not good.

Of course, anyone who regularly follows this blog already knows that bad US government regulation and regulatory uncertainty, particularly the new (and often unknown) burdens of ObamaCare and Financial Regulatory Reform, are doing a number on American businesses' ability to compete in the global economy.   But it's certainly not just ObamaCare that's salting the regulatory earth here in the USA.  Indeed, just last week the Post wrote about how draconian environmental regulations have all but extinguished domestic manufacturing of the incandescent lightbulb and the jobs that go with it:

The last major GE factory making ordinary incandescent light bulbs in the United States is closing this month, marking a small, sad exit for a product and company that can trace their roots to Thomas Alva Edison's innovations in the 1870s.

The remaining 200 workers at the plant here will lose their jobs.

"Now what're we going to do?" said Toby Savolainen, 49, who like many others worked for decades at the factory, making bulbs now deemed wasteful.

During the recession, political and business leaders have held out the promise that American advances, particularly in green technology, might stem the decades-long decline in U.S. manufacturing jobs. But as the lighting industry shows, even when the government pushes companies toward environmental innovations and Americans come up with them, the manufacture of the next generation technology can still end up overseas.

What made the plant here vulnerable is, in part, a 2007 energy conservation measure passed by Congress that set standards essentially banning ordinary incandescents by 2014. The law will force millions of American households to switch to more efficient bulbs.

The resulting savings in energy and greenhouse-gas emissions are expected to be immense. But the move also had unintended consequences.

Rather than setting off a boom in the U.S. manufacture of replacement lights, the leading replacement lights are compact fluorescents, or CFLs, which are made almost entirely overseas, mostly in China.

Consisting of glass tubes twisted into a spiral, they require more hand labor, which is cheaper there. So though they were first developed by American engineers in the 1970s, none of the major brands make CFLs in the United States.

Another big problem, as highlighted by Ed Morrissey over at HotAir, is the distressing fact that the United States has dropped to 40th(!) place on protecting basic property rights:

If readers aren’t stunned by the nations listed, then they’ll be stunned by the length of the list, at least. No one will be terribly put out to see Canada (10), Austria (9), or Switzerland (1) ahead of the US. But what about Saudi Arabia (28)? China (38)? Jordan (30)? The US got edged out by Gambia, which relies on foreign aid to deal with high unemployment and underemployment, according to the CIA factbook.

If we want to improve our economy, we need to improve our competitiveness. If we want to improve competitiveness, we need to protect property rights and get the federal government out of the redistribution business. Property rights are the first rights mentioned in the Constitution (Article I, Section 8) for a reason. It’s the basis of prosperity and opportunity, and also the basis of a free, self-governing people. Falling behind China in property rights should be a national embarrassment, and a reminder of just how far we have traveled from our founding principles. And that journey didn’t start with Barack Obama, even if he’s been busy hitting the accelerator.

Everything Morrissey says is definitely correct, but he misses a more basic point that is, I think, most important for the present competitiveness discussion (the whole point of WEF survey, afterall): why regulatory burdens and ineffective protection of property rights hinder a nation's global competitiveness and, even more broadly, why declining competitiveness is even a problem.  Fortunately, the answers to both of these questions are actually pretty simple, especially when you consider the folks who form the basis of the WEF's survey - global business leaders.  You see, it's these guys (and gals) who make the really big and tough decisions about where to invest their companies' (and shareholders') money in things like factories or banks or tanning salons or... well, you get the idea.  Coming to that decision is no easy task, and CEOs have a fiduciary duty to their shareholders (read: you and me) to make the best decision possible based on all possible facts - a calculus which includes, among many factors, the likelihood that the host government is going to interfere in, and thus diminish or destroy, the value of that investment after it's been made.

And, of course, an unlimited, overburdensome, opaque and/or uncertain regulatory environment is a very big "minus" in that calculus.  For example, who would want to spend a billion dollars on a steel plant if there's a reasonable chance that the domestic government might pass some crazy regulation that would make steel production at that plant impossibly expensive (or outright illegal)?  Or who would want spend another billion to buy land or mineral rights in a country whose leader might suddenly decide that the land and all its minerals belong to his croniesthe People?  The answer: nobody, and it's for these reasons that the very first pillar of the WEF's competitiveness analysis is "institutions" (and its 21 subcategories!).

In these examples we also see one of the biggest reasons why the rapid decline in a nation's global competitiveness is a big problem - it discourages domestic and foreign investment in the declining country, and thus curtails economic activity and new jobs.  And that's why the United States' decline in the aforementioned competitiveness categories is so alarming.

These problems are also a big reason why governments and corporations have developed modern global investment rules - to limit the potential for government intrusion in their lawful investments.  As I said the other day:

FTA investment provisions... are actually designed to encourage mutual investment in FTA partner countries - i.e., to help the countries give each other money for silly things like factories and jobs - by providing certain basic protections for that investment. And against what exactly are these rules protecting, you ask? Well, for one, they help discourage guys like Hugo Chavez from forcibly taking the land or facilities that a foreign company has fairly purchased because those rules would obligate ol' Hugo to compensate the company in the amount of its stolen investment. The horror! These rules also prevent governments from passing protectionist laws that will harm an FTA partner company's investment where the company proves that those laws are actually disguised restrictions on trade or violate due process. For example, if American ScottCo buys a Mexican widget factory and then Mexico passes a "health regulation" prohibiting the domestic use of only ScottCo widgets (but not Mexican widgets), Mexico would have to compensate ScottCo where the company showed that the Mexican regulation had no rational, scientific basis. And, of course, by seeing this type of sane, rules-based investment protection, companies like ScottCo are more inclined to invest in Mexico in the first place.

Now, I'd never attempt to claim that global investment rules are perfect or that they don't occasionally produce some odd, even unseemly, disputes (as I noted in the comments to my post above).  Such criticism is entirely fair.  But to claim, as some folks seem to do, that global investment protections don't help encourage foreign investment (and thus job creation) by limiting naughty governments' ability to thwart that investment is to completely ignore reality and surveys of actual business decision-making like the WEF's.  Does anyone really think that, if the United States had a long history of confiscating foreign (or domestic) investors' property or whimsically regulating them out of existence (and no limits on its power to do these troubling things), Toyota would have decided to invest $1.3 billion in a new automobile factory in Mississippi (2000 new jobs), or Germany's ThyssenKrupp would have invested almost $5 billion in a new stainless steel plant in Alabama (2700 new jobs)?

Of course they wouldn't, and the struggling American workforce be almost 5000 jobs smaller (not to mention all the indirect jobs created from these investments).

Now, the United States has (had?) a longstanding history of reasonably sound domestic regulation and basic property rights protections (among other things), so the external limits on government meddling imposed by international investment treaties are the icing, rather than the cake, for foreign investors deciding whether to invest in the US market.  But plenty of other, especially developing, countries don't have this history, and often don't even have a short history of peaceful, seamless transfer of power.  So by providing an external check on these big institutional risks, investment treaties provide a small "plus" in that aforementioned CEO calculus about where and whether to invest that shareholder money.  In short, by limiting governments' ability to infringe on foreign investment, no matter how big or small, these treaties enhance the countries' global competitiveness and ability to attract that investment.  They provide a small bit of clarity and consistency - an absolute imperative for investment (and law) - where little if any exists.  And that environment benefits everyone, particularly those workers whose jobs result from that new investment.

Now if only the US government would remember these lessons.

Umm, Yeah, About that "Dangerous" NAFTA Investment Thing...

One of professional anti-traders' more, umm, "sophisticated" criticisms of US free trade agreements is that they create frightening new investment powers for foreign corporations.  In short, protectionists claim that "NAFTA-style" FTAs are just horrible because, among other things, they allow foreign corporations to challenge domestic health, consumer or safety regulations, and, if they win, to receive compensation from the offending government.  For example, here's Public Citizen on the US-Korea FTA:

If the [Korea-U.S. FTA] were to go into effect, at least 79 Korea-based corporations with 270 establishments across the United States would obtain new rights to demand taxpayer compensation through challenges of U.S. federal, and state laws in foreign tribunals.

Oooooh, scary!  Of course, what these fearmongering protectionists always fail to mention is that the FTA investment provisions that they're carping about are actually designed to encourage mutual investment in FTA partner countries - i.e., to help the countries give each other money for silly things like factories and jobs - by providing certain basic protections for that investment.  And against what exactly are these rules protecting, you ask?  Well, for one, they help discourage guys like Hugo Chavez from forcibly taking the land or facilities that a foreign company has fairly purchased because those rules would obligate ol' Hugo to compensate the company in the amount of its stolen investment.  The horror!  These rules also prevent governments from passing protectionist laws that will harm an FTA partner company's investment where the company proves that those laws are actually disguised restrictions on trade or violate due process.  For example, if American ScottCo buys a Mexican widget factory and then Mexico passes a "health regulation" prohibiting the domestic use of only ScottCo widgets (but not Mexican widgets), Mexico would have to compensate ScottCo where the company showed that the Mexican regulation had no rational, scientific basis.  And, of course, by seeing this type of sane, rules-based investment protection, companies like ScottCo are more inclined to invest in Mexico in the first place.

Pretty sane and un-scary, huh?

Unfortunately, the anti-trader's "investment canard" has become a real favorite of congressional protectionists. For example, here's Maine's favorite protectionist congressman, Mike Michaud (D), on the KORUS FTA in a 2009 letter to President Obama:

While the Bush FTAs with Colombia, Panama, and Korea contain some improvements regarding labor and environmental standards relative to NAFTA, more work is needed on these and other provisions. Many of the most serious problems with the previous trade-agreement model are replicated in these FTAs. They must be renegotiated to ensure that these pacts at a minimum pass the most conservative “do no further harm” test.

This includes the FTAs’ investment chapters, which afford foreign investors with greater rights than those enjoyed by U.S. investors. These three pacts’ foreign-investor chapters contain the same provisions in CAFTA that led many Democrats to oppose that pact, and that you cited as problematic during your campaign. Such provisions promote offshoring and subject our domestic environmental, zoning, health, and other public-interest policies to challenge by foreign investors in foreign tribunals.

Gee, that sure sounds pretty bad.  Well, it isn't, and recent events surrounding two investor-state disputes in Canada have clearly demonstrated that protectionists' "investment canard" is really just a bunch of fear-mongering poppycock.  First, comes news that the Canadian government has settled with US-based AbitibiBowater after the province of Newfoundland seized Abitibi's land and assets:

Canada agreed to pay AbitibiBowater Inc., the insolvent pulp and paper maker, C$130 million ($123 million) to settle a trade complaint after the government of Newfoundland and Labrador stripped the company of its timber and water rights in 2008....

AbitibiBowater in February filed a trade complaint against Canada over what the company said was the illegal seizure of property by the provincial government in Newfoundland. At the time, AbitibiBowater requested C$500 million and filed the case under the terms of the North American Free Trade Agreement....

With demand for newsprint falling, AbitibiBowater decided in 2008 to shut the Grand Falls-Windsor Mill in Newfoundland, which had operated for more than a century. Within two weeks of announcing that closing, the provincial government passed legislation stripping the company of its timber and water rights, according to the Nafta petition.

In short, Newfoundland politicians got mad that a bankrupt US-based company was shuttering some of its Canadian facilities, so, instead of attempting to broker a reasonable compromise or just letting the market, you know, actually work as it's designed, the Newfie government forcibly seized AbitibiBowater's property without any compensation.  Fortunately for AbitibiBowater's creditors and investors, however, the company had legal recourse under NAFTA investment rules, and that led the Canadian government to provide fair compensation for the seized property (although C$370m less than the company wanted).  How, errrr, scandalous.

Only a day later, however, the Canadian government came out on top in another NAFTA investment dispute, this one involving US chemical company Chemtura and new Canadian environmental regulations:

The lawyers at the Department of Foreign Affairs and International Trade are not bragging about it—at least not to date—but they've just won an impressive victory in an $80 million-plus NAFTA lawsuit.

Earlier this month, a panel of three arbitrators dismissed claims filed by the US chemical company Chemtura under Chapter 11 of the North American Free Trade Agreement.

Chemtura had sought to hold Canada liable for financial losses related to the government's phase-out of lindane, a hazardous agricultural chemical. However, the company failed to persuade arbitrators that government regulators acted without regard for scientific evidence or due process.

In addition to kicking Chemtura's claim to the curb, arbitrators also ordered the company to reimburse Canada for $3 million in legal costs and expenses.

In short, Canada passed a law outlawing lidane,which Chemtura produced; Chemtura sued under NAFTA; and the arbitrator ruled in favor of Canada because Chemtura couldn't show that Canada's new law was unscientific.  I dunno about you, but that seems pretty rational (and deferential) to me.

So to summarize, in the last week we've seen these horrible, scary NAFTA investment rules (a) lead to the fair compensation of a bankrupt US company whose lawful property was forcibly seized by the government in response to the company's routine (but unfortunate) commercial decision; and (b) uphold a Canadian environmental regulation and compensate the Canadian government for its legal expenses.

Stop the insanity!

Oddly, neither Congressman Michaud nor Public Citizen has commented on these excellent Canadian examples of the FTA investor-state provisions that they so detestenjoy bringing up.  Instead, Public Citizen's latest blog post scares us about - you guessed it - KORUS investment provisions.  (Because, you know, why focus on a silly thing like how these investment provisions actually work in practice?)

With Credit Tight, White House and Congress Say "Thanks But No Thanks" to Chinese Investment

It's no secret that the American government has run up huge debts over the last few years, and that China (and other foreign countries) has been one of the largest buyers of this new (and troubling!) American debt.  Indeed, after a brief respite, China has once again ramped up its US debt purchases in the wake of the European debt crisis.  The result of these purchases has been lower interest rates for American consumers, and a check on US inflation that has allowed liberal economists like Paul Krugman to argue for even more government spending.  Nevertheless, China's debt purchases have also elicited loud screams from the very Congress that has created that debt in the first place.  Indeed, just last month the US Senate overwhelmingly approved an amendment that would "require regular White House reports on the financial and national security risks posed by debt held by China and other foreign governments."

Assuming that Chinese purchases of US government debt really are a big problem for the US economy and US national security (a rather dubious claim to be sure), one simple solution would be to encourage China to invest its greenbacks in private American companies (who could certainly use it right now), as Cato's Dan Ikenson explains in a recent paper:

If it is desirable that China recycle some of its estimated $2.4 trillion in accumulated foreign reserves, U.S. policy (and the policy of other governments) should be more welcoming of Chinese investment in the private sector. As of the close of 2008, Chinese direct investment in the United States stood at just $1.2 billion— a mere rounding error at about 0.05 percent of the $2.3 trillion in total foreign direct investment in the United States. That figure comes nowhere close to the amount of U.S. direct investment held by foreigners in other big economies. U.S. direct investment in 2008 held in the United Kingdom was $454 billion; it was $260 billion in Japan, $259 billion in the Netherlands, $221 billion in Canada, $211 billion in Germany, $64 billion in Australia, $16 billion in South Korea, and even $1.7 billion in Russia.

Sounds pretty reasonable, huh?  Well, only one problem: the White House and many folks in Congress don't seem too keen on Chinese private investment in the United States, either - at least, that's what two stories from over the weekend surely indicate.  First, the FT reports that the Treasury Department has thwarted an attempt by a Chinese firm to invest in a US fiber optic company because of national security concerns:

The Obama administration has forced a US maker of fibre optics to abandon a planned joint venture with China’s Tangshan Caofeidian Investment Corporation because it believes the tie-up would threaten national security.

The decision by the White House to scupper the move represents the second time in less than a year that the administration has sought to block a transaction involving a Chinese company because of security concerns.

It also offers a rare glimpse into the administration’s handling of sensitive acquisitions following a drought in cross-border deals during the financial crisis.

Emcore, which is based in New Mexico and makes components for fibre optics and solar panels, said in a statement it had withdrawn a voluntary filing with the Committee on Foreign Investment (Cfius) after the executive branch panel said it had “regulatory concerns” over the venture.

Cfius, which is chaired by the Treasury department, conducts classified investigations of deals on national security grounds.

Although it rarely blocks transactions formally – it has done so only once – the panel alerts companies about a problem to allow them to drop merger plans voluntarily.

Under the terms of the deal, Emcore was set to sell 60 per cent of its fibre optics business to TCIC for $27.8m in cash. “While addressing any regulatory requirements, Emcore remains committed to seeking other means of co-operation,” the company said.

The Treasury department declined to comment....

Late last year, Washington forced another Chinese company to abandon a bid to buy a 51 per cent stake in FirstGold, a Nevada mining group.

Second, Reuters piles on with news of a congressional attempt to thwart Chinese investment in an American steelmaker:

A bipartisan group of 50 U.S. lawmakers called on Friday for an investigation into whether a Chinese investment in the U.S. steel sector should be blocked on national security grounds.

The Congressional Steel Caucus, in a letter to Treasury Secretary Timothy Geithner, said it was "deeply concerned" the recently announced joint venture between Anshan Iron and Steel Group's ASISG.UL and the Steel Development Co also threatened American jobs.

The Chinese state-owned firm, also known as Angang, plans to invest in a $175 million rebar facility that Steel Development is building in Amory, Mississippi.

Rebar is a reinforcing steel bar commonly used in concrete and masonry structures.

The move comes at a time when U.S. steel companies have complained loudly about unfair competition from China and have won a number of U.S. anti-dumping and countervailing duties on Chinese steel goods.

It also follows a high-level pledge by Geithner and senior Chinese officials in late May that the United States and China would remain open to each other's investments.

"Anshan is China's fourth-largest steel producer and the product of massive Chinese government subsidies," the lawmakers said in their letter. "We are deeply concerned that their direct investment in an American steel company threatens American jobs and our national security."

"For example, Anshan could have access to new steel production technologies and information regarding American national security infrastructure projects," they said.

Chinese government subsidies could allow Anshan "to distort the American market and force American steelworkers to compete against a blank check," the lawmakers said.

So to recap: the US economy is teetering on the brink of a double-dip recession, and one of the biggest problems is access to investment capital.  The Chinese are trying to provide some of that absent capital by investing in American manufacturing (and American jobs, by the way).  Such investment also would quell many lawmakers' concerns (baseless as they may be) that China owns too much US government debt.  And yet, it appears that our White House and many in Congress are openly hostile to this Chinese investment.

In the best of economic times, telling China to take its dollars and buzz-off would be bad policy.  Right now, it's flat-out insane.