Where Is the Line Between National Security and Economic Prosperity?

COMMENTARY Government Regulation

Where Is the Line Between National Security and Economic Prosperity?

Jul 12th, 2017 3 min read
COMMENTARY BY
Riley Walters

Research Associate

Riley is a Research Associate at The Heritage Foundation.

Key Takeaways

The government should not be in the business of telling U.S. companies how to operate or with whom to do business.

Proposed expansion of CFIUS authority could include a review of how foreign purchases affect the U.S. economy — perhaps blocking transactions found "undesirable."

The government should stop short of determining how U.S. businesses should be run or sold. Otherwise, we will have the government picking who wins and who loses.

It’s one thing for the government to tell a U.S. company it can’t sell part of its business because the transaction would undermine national security. It’s another to bar the sale because the deal might hurt other U.S. companies. In the former circumstance, the matter of national security outweighs any commercial gain. In the latter, it boils down to government deciding the matter in favor of one party over the other.

But when the stakes are high, some folks will try to blur the distinction. In 2013, for example, American business interests tried to block Shuanghui’s purchase of pork producer Smithfield Foods on the grounds that it somehow threatened national security.

More recently Wanda Group’s billion-dollar investment in Paramount Pictures was opposed by interests making similar — and equally spurious — claims. Some transactions may, in fact, endanger national security. The transfer of technology that an enemy could use against us is one example.

But as a general rule, the government should not be in the business of telling U.S. companies how to operate or with whom to do business. It undermines our national interests in maintaining open-market competition and jeopardizes the continuation of a 40-year trend of increased foreign investment in the U.S.

The Committee on Foreign Investment in the U.S. (CFIUS) reviews how foreign investment in American companies affects U.S. national security. And there‘s general agreement that the committee does a decent job at reviewing foreign entities trying to gain control in a U.S. company.

Yet some, such as Sens. Chuck Schumer (D-N.Y.) and John Cornyn (R-Texas), have proposed the committee’s authorities should expand. This could include a review of how foreign purchases affect the U.S. economy — perhaps blocking transactions found economically undesirable, whatever that may mean.

Other proposals include increased scrutiny for specific countries, such as those with greater state intervention in market activities, or those countries that don’t allow a reciprocal level of U.S. investment

A robust U.S. economy and strong national security remain two core objectives of U.S. policymakers. It is perfectly appropriate to pursue actions that will protect U.S. citizens from foreign investors intent on corporate or political espionage, or pose a direct threat to our national security.

But the government should stop well short of determining how U.S. businesses should be run or sold. Otherwise, we will have the government picking who wins and who loses, and governments have a poor track record when it comes to planning economies.

Any analysis on the economic benefit of allowing or blocking foreign transactions would be tedious, to say the least. Any conclusions made would be based on an assumption of risk that would surely overestimate any negative outcomes (job losses) relative to the positive gains (job gains), assuming all factors of analysis can be accounted for such as the effect on local suppliers and competitors. Government agencies often skew cost-benefit analyses for proposed regulations based on incomplete information.

Some have argued for greater scrutiny of all Chinese transactions into America, whether that investment is in technology, agriculture, or simply cultural. But investments in sectors with no direct connection to U.S. defense or national security, such as pork or motion pictures, pose no direct threat to U.S. national security. And business owners should be guaranteed the freedom to handle their business without having to worry about future state intervention.

To the delight of potential foreign investors and U.S. sellers, Treasury Secretary Steve Mnuchin told Bloomberg News he has no intention on targeting transactions from specific countries. He’s open to Congress making slight expansions to the program.

But that the focus of CFIUS remains on national security. CFIUS is an important tool for maintaining U.S. national security. The committee should remain focused on reviewing transactions for the sake of national security. Proposals to include economic benefits tests or increase the influence of other agencies only adds to the bureaucracy of the review process.

Congress should instead consider looking closer at the efficiency of the CFIUS review process itself and appropriately fund the committee to keep up with the increasing demand of foreign investment into the United States.

This piece originally appeared in The Hill on 5/12/17