Monday, October 6, 2014

Buy American, Yeah But...

     that is not as simple as it seems.

Today Bloomberg news is reporting Hilton to Sell NYC’s Waldorf Astoria to Chinese Insurer for $1.95 Billion . The Hilton's owned this iconic 47 story hotel since 1972. It joins an ever growing list of companies already bought up by China's investors. The list includes AMC Entertainment ($2.6b), Smithfield Foods ($7.099b) and IBM ($1.75b) to name just three. As of 2013 it was estimated Chinese investors had about $14 billion invested in previously owned American companies.

I've always been a critic of our foreign trade agreements. Here's yet one more glaring example of how we always seem to come out on the short end of the stick. The United States seldom limits foreign ownership. China on the other hand currently limits foreign ownership to 10% for a individual and 30% for partnerships. On the upside many of these still maintain headquarters here and supply about 70,000 full time jobs. The downside is (except for Americans who hold these limited investments in China), the lion's share of dividends from them end up in China.

Foreign Ownership: Let's Broaden Our Focus
Anyone intending to buy strictly American goods need to realize how nearly impossible that is when buying from any large corporation. Most consumers are already aware most of the things these big boys market are made in a foreign country. What many consumers aren't aware of is many of these former American brand names are no longer owned by American investors. Here's a short list...
      Budwiser- Belgium
      Alka-Seltzer- Germany
      Ben & Jerrys- British/Dutch
      7-11- Japan
      Gerber- Switzerland
      Firestone- Japan
      Frigidaire- Sweden
      Good Humor- England
      Hellman's- England

As of 2012 some 9.6% of U.S. assets were already foreign owned (about $3.9 trillion). Some 5.6 million American workers may not even be aware they work for a foreign owned company.

The Good. The Bad.
It's estimated Americans have $21 trillion invested overseas. The total amount of all foreign investment in this country totals $25 trillion. That may be a good thing in-so-much as foreign nations have a stake in how well we do in this country. On the other hand when there is economic instability overseas it can affect foreign owned companies within our borders if foreign investors begin to tighten their belts. It goes without saying reciprocally the same will affect investors here in this country who's money is tied up in foreign markets.

The U.S. agreeing to allow almost unlimited investment by China without being allowed the same in return is a lousy trade deal. China has gotten rich off of our companies outsourcing to them. They then in turn took that new found wealth and bought outright 100% many of these same companies.

China represents 19.7% of our imports while only importing 7.7% of ours. I'm not certain how much of that 7.7% represents the companies they own here. The U.S. is China's biggest trade partner. We buy 16.7% of everything China exports. Almost three times more then it's next largest trade partner. You'd think with that kind of leverage we'd exert a little more pressure to come up with a better deal. Talk about a crummy trade agreement. To my way of thinking the foreign trade agreement with China gave the henhouse away!

China isn't exactly a great buddy when it comes to supporting Western nations including the United States. China signed a security agreement in May with Russia's Putin and Iran just as the U.S. was trying to form a NATO agreement with the Ukraine. In return Russia promised China a $400b supply of natural gas. This was interpreted as a poke in the eye because Russia was looking for a way to cut off gas to nations that looked towards distancing themselves from Russia. By China so doing it also made it possible for Russia to thumb their noses at European nations who threatened sanctions over Russia's actions in the Ukraine.

China also indicated it has a long term goal of pulling back on the U.S dollar's dominance in the global market. It's already made several moves towards that goal. Imagine what that would mean to these already lousy trade agreements. Goods from China would cost more. U.S. borrowing would cost more. So on and so forth.

The United States doesn't only need to watch it's back when it comes to foreign aggression threatening our way of life, but economic ones as well.

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