For years, angry Americans have whined about China’s currency manipulations. More recently, a central platform of Mitt Romney’s campaign was to turn China into an international pariah for making its exports artificially cheap.
Why would China be doing this for years? The employment effects (i.e., the loss of jobs to foreign countries) are small – if they exist at all – and short-lived regardless. What China really hoped to attract was more investment into the country to use as a vehicle of growth. Investment became artificially profitable in China and more factories got built there.
There was a role reversal earlier this year, when China’s Shuanghui International Holdings decided to buy Smithfield Foods Inc., a U.S. pork producer. The Treasury Department’s Committee on Foreign Investment is reviewing the purchase, according to the Wall Street Journal.The directional signs of currency manipulation and Chinese investment in America are opposite. Almost five billion dollars of investment came from China into the United States. Meaning, it is in effect the opposite of what the PRC’s intentions were when doing all that evil currency manipulation. Flatly speaking, it is nonsensical to decry both, as does for example Howard Schneider of the Washington Post (compare here and here).
The common thread is that, when it comes to economics, people are still afraid of foreigners. This isn’t the first time that such inconsistency has arisen when dealing with foreigners. After years of exporting to the United States, Japan did some investing here, too. That led to someone as virulently reactionary as Kurt Vonnegut to endlessly harp on about the Japanese owning everything in his heavy-handed 1990 novel, Hocus Pocus.
Even when Nintendo, whose American operations are out of the Seattle, decided to give back to the area by purchasing the Mariners in 1992 to keep them in the city, they were thanked with a PR fiasco as locals were incensed that a Japanese company would dare take the majority ownership of a franchise playing the national pastime.
If you buy that the stealing-of-the-jobs effect is real, then you should welcome the injection of $5 billion in investment from China. This is an injection of spending taking place when many Americans are out of work. Financial markets are mysterious places for everyone, economists included, but it is hard to construct a mental model of an economy whereby this investment is somehow bad for the United States.
Populist journalists these days cannot come out and say don’t like the deal because they are afraid of Asians. The out-of-nowhere narrative that has since appeared to justify our tribalistic suspicions is that food handling is somewhat terrible in China, so Chinese ownership will make the company relax its standards. I wonder if these analysts also believe if Smithfield Foods will reallocate their resources toward growing rice, because they do that in China, too.
Believe it or not, the reason why food standards are low is that China is still overall a middle income country. That is another way of saying “very poor by American standards.” China, in fact, only recently surpassed half of Mexico’s GDP per person.
And since when is it still in good taste to attribute the quality of corporate governance and business practices to ethnicity? If you are on the right, you probably trust the powers of the market to tame selfish businesses into providing products that will not harm their customers. If you are on the left, you probably find the need for government oversight to ensure greed will not win out.
Under both visions, institutions of modern societies enable consumers in the developed world to trust the food they are putting in their mouths will not hurt them even if it was produced by a soulless multinational corporation run by greedy psychopathic CEOs. But just now everyone is concerned about soulless multinational corporations run by greedy psychopathic CEOs who happen to be Chinese?
Alton Brown, a food celebrity with a longer track record of analytical acumen than anyone else in his cohort, expressed discontent at this development in the first episode of his newly-launched podcast. “What does it mean to us? Well, just another big chunk of America owned by China, and if you don’t have a problem with that, you don’t have a problem with that,” Brown said.“I have a problem with that.” And many others feel a vague distaste for the inevitable effects of globalization, one of which obviously is the global ownership of most large firms.
Another effect is the billion (yes, with a “b”) people taken out of poverty throughout the world between 1990 and 2010. The overwhelming majority of economists believe that while this was happening, the United States became modestly richer than it would otherwise be as a result of the globalization. The icky feeling some people get at the idea of foreigners owning American companies is a small price to pay for all that.