An Urban's Rural View

The House of Representatives passes a bill requiring China's ByteDance to sell TikTok to an American owner or be banned. President Joe Biden denounces Nippon Steel's acquisition of U.S Steel, saying it must remain American owned. Legislation to ban Chinese ownership of farmland is introduced in Washington and state capitals.

Is the United States turning against foreign investment?

Not judging from the statistics. According to the Organization for Economic Co-Operation and Development, the U.S. was the No. 1 recipient of foreign direct investment in the third quarter of 2023. The $73 billion it took in was 30% higher than the $55 billion received by the 27 countries of the European Union and nearly triple the $26 billion of the No. 2 country, Ireland. (https://www.oecd.org/…)

TikTok, Nippon Steel and farmland are special cases, then; the welcome mat is generally still out. But these special cases are worth looking at. If nothing else, they shed light on the types of investments that might become special cases in the future.

Investments threatening national security top the list. That's not entirely new; the government's Committee on Foreign Investment in the U.S., or CFIUS, has been doing national-security reviews since its creation in 1975. The Tik Tok case, however, suggests the definition of national security is being broadened.

What troubled Congress was, first, the potential for the company to share personal data on its 150 million American users with the Chinese government, and second, the company's ability to influence American politics.

TikTok demonstrated that ability during the run-up to the Congressional vote. It urged users to contact their representatives on its behalf. They did, big time. That's political influence.

Personal data and political influence weren't always national-security concerns. They are now.

Does this broadened definition apply only to Chinese investment? Perhaps. American politicians don't fret about the London-based Economist, which often endorses U.S. presidential candidates. That's not because the Economist lacks influence; its U.S. readership, print and electronic, is in the millions. Washington doesn't care because the United Kingdom is an ally.

China isn't. Many Americans see China as a threat. Anything China does is politically sensitive. Hence the concern about Chinese ownership of American farmland. China does pose serious potential threats to U.S. ag, including theft of intellectual property and cyberattacks. Farmland purchases are a low-level threat.

China accounts for only about 1% of the 3% of U.S. farmland owned by foreigners. Even so, politicians are up in arms. South Dakota Governor Kristi Noem says China is "buying up our entire food supply chain."

Unlike China, but like the UK, Japan is a U.S. ally. Nippon Steel's proposed acquisition of U.S. Steel is a special case for different reasons. One is the iconic status of U.S. Steel, as I explained here: https://www.dtnpf.com/…. The other is that a rival bidder for U.S. Steel, Cleveland-Cliffs, has teamed up with the United Steelworkers' Union to oppose the deal.

Unions have big clout in election years. Both presidential candidates covet union support. Soon after President Biden disclosed his opposition to the acquisition, the steelworkers union endorsed him.

Does this apparent quid pro quo kill Nippon Steel's chances? Maybe -- that's what Cleveland-Cliffs is telling Wall Street -- but the CFIUS review is still underway. It's still possible CFIUS will rule the deal doesn't threaten national security.

There are ironies in Cleveland-Cliff's campaign. While it's urging the government to keep U.S. Steel American, its CEO -- Lourenco Goncalves -- is Brazilian. And while Nippon Steel's proposed acquisition must pass muster with CFIUS, a Cleveland-Cliffs acquisition could have difficulty surviving review by antitrust regulators. U.S. Steel and Cleveland-Cliffs produce as much as 80% of the steel used by U.S. automakers between them. (https://www.wsj.com/…)

Foreign investors often introduce new products, processes and management techniques that benefit receiving countries. Many Americans think Tik Tok offers a superior user experience. Nippon Steel could teach U.S. Steel a thing or two about steelmaking. Detroit didn't really tackle its quality problems until Japanese auto makers started building cars in the U.S. a few decades ago.

The Japanese, for their part, have traditionally discouraged incoming foreign investment, though they've warmed to it some in recent years. According to Richard Katz's book The Contest for Japan's Economic Future, Japan ranked 169th out of 169 countries in a 2019 tally of foreign direct investment as a percentage of GDP.

Is it better to give than to receive foreign investment, as Japan seems to think? The U.S. has long been happy to do both. Special cases notwithstanding, that's likely to continue.

Urban Lehner can be reached at urbanize@gmail.com

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