Rising Foreign Investment in the United States

The Washington Post reports today on the rise in Middle Eastern investment in the United States.

The Dubai-ports controversy is the obvious news hook for the story, but the real story is buried deep into the report from Paul Blustein.

That story is that foreign investment in the United States — both in financial paper and direct investment — is at an extraordinarily high level.

Blustein reports,

Whatever Arab investors abroad finally do, their clout is relatively small — at least for now. At the end of 2004, investors from Arab countries held just $4 billion in direct investment in the United States, according to Commerce Department data.

British investors, by contrast, held $252 billion, Japanese investors held $177 billion, Dutch investors held $167 billion and German investors held $163 billion. Their holdings span industries often deemed “critical,” such as telecommunications (Finland’s Nokia Corp. and Sweden’s Ericsson Inc.), energy (British Petroleum PLC and Royal Dutch Shell PLC) and utilities (E.On AG of Germany, which controls much of the gas and electricity distribution in Kentucky).

The aggregate foreign control of the U.S. economy is quite amazing. One view is: Who cares? These companies and investors are seeking a profit and are no different than U.S. companies and investors. But another take is: This foreign control leaves the U.S. very vulnerable. If the value of the dollar declines, as surely it will thanks to the massive trade deficit, then investors are going to pull out of the United States, or demand much higher returns on investment — meaning interest rates will have to rise.

The considerable foreign control of the U.S. economy is an outgrowth of the trade deficit, and until that problem is addressed, foreign ownership stake will continue to rise.

Here are some more numbers from the U.S. Treasury Department: Foreign companies operating in the US account for 5.8 percent of U.S. GDP from private industry, and 4.7 percent of employment in the U.S. private sector.

And, as of June 2004, the Treasury Department reports, foreign investors held $6 trillion in securities in the United States, up sharply from $5 trillion the year before. New data when it becomes available will surely show the number continuing to skyrocket.