International Business

What do Dubai, Hong Kong, and a foreign owned US based companies have in common? They are all at the center of a political perfect storm of nationalism and economic isolationism. In late February, a United Arab Emirates Company tried to acquire the firm that manages port operations in the southeast, and congressional leaders were in an uproar over so-called foreign ownership of our ports. The pushback was so fierce that the UAE ended up handing control over to an American overseer.

Then again, earlier this month Hong Kong based Hutchison Whampoa Ltd was blasted over security concerns when the president hired them to scan incoming containers for nuclear material. The irony, or rather by some double standard, the company had been previously been barred from purchasing bankrupt communications company Global Crossing only a few years earlier due to security concerns. The news sent politicans on both sides of the isle into a tizzy, many of whom claimed that the no-bid contract was both improper and risky. Some alleged that the Hong Kong based company could easily fall under Chinese influence. What few failed to realize is that Hutchison is already in charge of port operations and security in the Bahamas, and that they have operated similar scanning equipment in Hong Kong for some time.

Finally, last week the U.S. China Economic and Security Review Commission alleged that a $13 million contract with US based Lenovo Group Ltd to provide computers would make the State Department vulnerable to spying by the Chinese government. The company flatly rejected the claims stating that all products sold it the US meets all necessary security certifications to qualify for government contracts.

So what do these three stories have in common? In each case, a foreign held company has come under increased scrutiny because in effect it is not American. Never mind that each of these companies employee Americans, as well as have a vested interest in the security and stability of the US. Never the less, excuses have been made, and deals have been stopped based upon knee jerk reaction and political grandstanding. In the case of the Dubai port deal, opposition rallied under allegations of ties to terrorism. However if this were grounds for not doing business with other nations, we'd have likely canceled the preceding deal after British national Richard Reid was apprehended for attempted terrorism.

The remaining two examples are just as ludicrous. In the case of Lenovo, while it is true that their PCs are made in Asia, the same can also be said of suppliers such as Dell and HP. While it's possible that some sort of hardware bug could be implanted when the PC is made, this is no more likely for one brand than another. What this latest allegation against Lenovo amounts to is an indictment by the Federal Government accusing the company of willingly conspiring to spy on the government. But you must ask yourself, is it easier to infiltrate single key positions within the government, or to infiltrate an entire company and turn many of its employees against their own government? Likewise, Hong Kong remains one of the least restrictive trade zones in the world. While its defense falls primarily under the control of Beijing, in practice the region executes extreme independence from China. Furthermore, as one of the largest shipping ports in Asia, Hong Kong is well versed not only in operations but security as well. To claim that Hong Kong is simply a pawn of the Chinese government is simply wrong and worst insulting to the many inhabitants of the region.

What all of this boils down to is economic protectionism. As industry here in America waxes and wanes, those invested in the old way of doing business will call for further steps to protect their interests. However, these protections come at the cost of limiting growth through partnership as well as diverting assets from the development of new lines of business. It's also true that such protections rarely work, as seen with recent steel and textile tariffs. These new rules have done little to slow the inevitable decline of these once proud industries. They also threaten trading relationships abroad, which can be disastrous if they spark and all out trade war.

However, don't believe that the United States is the prime perpetrator of protectionism. Europe's long history of protection borders on outright isolationism. Such much so that in spite of recent trade agreements under the EU, several European nations have not only barred foreign companies from buying domestic firms, but have artificially sought to consolidate them into hulking masses that could not survive without government subsidy. A deal was recently blocked in France where Italian based Enel sought to buy French power company Suez, one of France's two main power concerns. The French government essentially froze out the Italians by setting up a counter merger between Suez and Gaz de France, which would consolidate a majority of public power utilities under one company. If the merger were to go through, the French would not only have one singular power company, but also distribution control to many of its neighbors.

On the surface, free trade and globalization may seem hard to swallow for some, but it is undoubtedly the direction of the future. In spite of recent regional conflicts, the world has enjoyed a period of peace and prosperity that hasn't been enjoyed for a generation. As the nature of transportation and communications continue to change, it's clear that path of continued prosperity is through cooperation and the unhindered flow of goods and services between nations. However, protectionism threatens to impede that flow, and at the very worst plunge us into an economic dark ages where only domestically produced goods and services are available. This would disastrous both for the United States, but also for emerging countries who depend upon future prosperity to both better themselves and improve regional socio-political stability. We can not give in to perceived insecurities about our own ability to compete on the global scale, as well as unfounded allegations and distrust fostered by politicians and businessmen with an axe to grind. It is only through increasing trade and competition that the United States will continue to prosper and succeed.