The U.S. is for sale – and foreign investors are buying
The dollar's slump makes scooping up US businesses and real estate a financial bargain.
The United States has become a bustling bargain basement for world investors. Using excess dollars earned as a result of the massive US trade deficit, foreigners are buying up big chunks of the nation's businesses and properties. The latest shoppers: Abu Dhabi for New York's Chrysler Building and a Belgian-Brazilian brewery for Anheuser-Busch.
"It's the single biggest transfer of wealth in the shortest period of time in the history of mankind," says Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, a group of mostly small manufacturers worried by their loss of business to foreign companies. "We can't continue to transfer US wealth at this rate."
In 2007, foreigners bought $255 billion of the worldwide existing assets of US businesses, up 72 percent from 2006. They spent another $22 billion, up 29 percent, to establish new enterprises in the US.
In a sense, America is for sale.
Foreigners have put $2 trillion into US plant and equipment ("foreign direct investment," in economic language) since 1992. Of this, $1.8 trillion, or 90 percent, is for buying up existing worldwide assets of US-based firms, notes Charles McMillion, chief economist of MBG Information Services in Washington. In other words, foreigners are purchasing not just the domestic assets of American business corporations and properties, but US assets abroad as well.
And they are getting the dollars to continue this shopping binge.
Despite the dollar's sharp devaluation against many currencies over the past five years, the Commerce Department reported last week that the global US trade shortfall for commercial goods and services reached $60.9 billion in April, up from $56.5 billion in March. The cost of imported oil is hurting.
"We are basically selling off the furniture to pay for Thanksgiving dinner," says Peter Morici, a professor at the University of Maryland's business school in College Park. He roughly calculates that at the present rate of deficits, foreigners could own in a decade more than a fifth of the nation's total $35 trillion or so in assets of every kind – corporations, businesses, and real estate.
"We are very vulnerable now," says Mr. McMillion. To finance the trade deficit, the US must borrow money or sell assets worth $2 billion a day – a shift that will eventually erode American living standards, he argues.
In the first four months of this year, US exports were up 18.8 percent from the same period a year earlier and imports up 12.7 percent. That represents a slow positive shift. Higher farm prices have helped.
On June 27, the Bureau of Economic Analysis will publish its annual statement on the "US net international investment position" at the end of 2007. It will again be negative, indicating the US position as the world's biggest debtor nation continues to worsen. At the end of 2006, the value of foreign investments in the US exceeded the value of US investments abroad by $2.54 trillion. That was up $300 billion from the year before.
Of course, the US remains a vital, huge economy with a relatively stable political system. McMillion blames "the overwhelming power of Wall Street's debt industry with the media" for the widespread touting of the US as a great place to invest and for the nation's complacency over record trade deficits and foreign debts.
Professor Morici sees as "insidious" the growing purchase by foreigners of the US business engines that generate wealth. He notes that the financial crisis of the last year forced several major American banks to replace lost capital with more than $30 billion of foreign money. This has left them "beholden" to the owners of that money, including the Saudi royal family in the case of Citibank.
US lawmakers have become more interested in foreign direct investment. Both the Senate and House held hearings this spring on sovereign wealth funds, pools of money owned by foreign governments. Their assets are expected to reach $12.5 trillion in five years as dollars accumulate abroad. Last month Treasury Deputy Secretary Robert Kimmit in a speech said the US should be sending the message "we are open for investment."
But Mr. Tantillo complains that US firms face "the rampant use of foreign trade-distorting practices and subsidies." His big complaint is the Value Added Tax (VAT) employed by 149 countries, including most of Europe, but not the US. It is a tax averaging 15.5 percent on domestic goods and services, but also is imposed on imports and rebated on exports. This "subsidy," he says, puts US companies at a $428 billion disadvantage in competing on world markets, he says. Tantillo hopes a bill before Congress dealing with the VAT problem will get more traction next year with a new Congress and president.