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Concerns about international investment have recently made headlines, in part due to news that Japan’s Nippon Steel Corporation (NSC) has agreed to acquire U.S. Steel.Japanese company leaders pledged to honor all existing labor contracts while expanding research and development, investment and production in the United States.
But critics on the left and right are calling on the government to block the sale. The legal basis for doing so is not clear. But either way, such a move would pose real risks to U.S. prosperity and security for three reasons.
The US has achieved great success in inbound investment
First, the United States benefits greatly from its openness to international investment. Breaking out of this policy is costly.
For decades, the United States has welcomed investment from around the world under what successive U.S. presidents have called an “open investment policy.” In fact, the United States is the world’s largest international investment destination.
International companies will have invested more than $5 trillion in the United States by the end of 2021, with companies from Japan, Europe, and Canada accounting for about 90% of the total. In 2021 alone, these companies are:
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It spent nearly $300 billion on U.S. factories and equipment.
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Investing $78 billion in U.S. research and development.
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Supported nearly $800 billion in U.S. payrolls.and
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Directly employed nearly 8 million Americans.
Japanese companies are leading the way as investors in the United States, and governors and state legislators are working hard to attract their investments and the new jobs they support. Japanese companies have invested more than $700 billion across the United States and directly employ nearly 1 million Americans (and an additional 2 to 3 million indirectly).
Sending a signal to the world, and to Japanese companies, that the United States is about to reverse its open-door policy will undoubtedly have a chilling effect. The United States may no longer be seen as a place that welcomes investment, construction, and jobs.
The U.S.-Japan alliance is vital to our security.
Second, Japan is one of our closest allies. To say otherwise would be to undermine U.S. national security across the Asia-Pacific.
The U.S.-Japan alliance is regularly referred to as the “cornerstone” of the free world’s security architecture in the Asia-Pacific region. Not only are more than 50,000 U.S. military personnel based in Japan, but the U.S.-Japan alliance remains strong even though Tokyo has increased its defense spending in recent years, much of it on U.S.-made defense systems. It has been strengthened.
Against this background, there has been a long-standing agreement that investments between Japan and the United States will enhance, rather than undermine, our national security. Just this year, the bipartisan House Select Committee on the Communist Party of China asked Congress to add Japan to CFIUS’s “white list” of close allies, along with Australia, Canada, New Zealand, and the United Kingdom, to exclude investors from these countries. It recommended that it be removed from CFIUS jurisdiction. Applies to many U.S. transactions.
Indeed, the chairman of the select committee, Rep. Mike Gallagher (R-Wis.), recently commented on the matter: politiko“Honestly, what Japan is doing now in terms of investing in its own defense is probably the single best thing that has happened to the U.S. deterrent force in the Pacific in the last 25 years. You don’t know why unless you’re aware of it [NSC’s acquisition of U.S. Steel] That’s going to be a problem. ”
Blocking sales would hurt U.S. interests around the world.
Third, blocking this investment could stimulate copycat activity abroad. It would harm America’s economic interests around the world.
Americans receive important benefits when U.S. companies invest abroad, but there are significant costs when foreign governments block investments in the United States on false grounds.
Sales of foreign affiliates of U.S. companies will exceed $7 trillion in 2021, representing about one-third of the total sales of U.S. multinational corporations. Many of America’s largest companies generate more than half of their revenue this way.
U.S. companies invest in foreign markets to serve the market, not as a substitute for domestic production. More than 90% of the products produced by foreign affiliates of US multinational corporations are sold overseas.
Not surprisingly, American companies concentrate high-wage, high-skill jobs in the United States. Still, these companies’ $7 trillion in overseas sales finance their research and development activities, 85% of which continues to take place in the United States. According to the US Department of Commerce.
Unfounded measures to block investment in the United States could be costly, including if American companies faced similar restrictions on their ability to operate in foreign markets.
In summary, the United States benefits greatly from its openness to international investment. We cannot close the door on these benefits.
About the author
John G. Murphy
John Murphy leads the U.S. Chamber of Commerce’s advocacy on international trade and investment policy and regularly represents the Chamber before Congress, the administration, foreign governments, and the World Trade Organization.
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