Politics and Strategy After the Dubai Ports Case

Dubai Ports World's decision — after overwhelming public and Congressional pressure — to sell off its new U.S. terminal operations to a U.S. owner is a huge victory for American national security, economic realism, and plain old common sense. The obvious follow-up is overhauling the federal Committee on Foreign Investment in the United States and turning it from a rubberstamp into a serious analytical and investigative body for screening proposed foreign takeovers of U.S. assets. (Readers can find a detailed USBIC proposal for CFIUS reform in the Washington Times piece posted elsewhere on this site.)

Beyond CFIUS reform, however, it's up to the huge Congressional majorities that opposed the Dubai deal to recognize and act on the full implications of their epiphany that, especially in the post-9-11 world, globalization and economic integration have even harder and faster limits than they previously believed. It's also up to globalization's critics — especially the nationalist realists — to convince well-intentioned American leaders and security activists that the same concerns that torpedoed the ports deal also require major changes in other current globalization policies.

From a purely political standpoint, the ports victory should dispel much of the pessimism in which the critics sometimes wallow. Yes, we're outspent in Washington by several decimal places, and the mainstream media either vilifies us or ignores us.

But the ports deal was strongly supported by all the heavy-hitter outsourcers groups, from the National Association of Manufacturers to the Business Roundtable to the U.S. Chamber of Commerce to the National Foreign Trade Council, not to mention virtually the entire punditocracy. And once voters made clear their angry, almost unanimous opposition, all of the press's fear-mongering and invective-spewing, and all of the lobbyists' cash-generated clout, was completely neutralized. If George Clooney thinks Hollywood is out of touch with Middle America, that's nothing compared with how marginalized the multinational companies were in Washington last week.

Congress's indifference to the outsourcers' lobby was especially instructive. It demonstrated once again that, although money talks too loudly in American politics, if the millions spent by the multinationals, or any other special interest, can't be translated into electoral clout during a major public policy storm, it's completely irrelevant. Thus Senate Finance Committee Chairman Charles Grassley, hitherto a reliable globalization cheerleader, told reporters in early March, "I had 16 town meetings a week ago in my state, and very definitely this is not a popular thing in grassroots Iowa." All the multinational heat in the world wasn't going to trump that feedback.

The converse, however, is also true: When the grassroots turn cynical or despondent or even merely silent, the special interests will win every time.

Concerning the issues themselves, the ports victory has indeed reminded globalization critics and cheerleaders alike that the push for open markets and borders must and will stop when it runs into screamingly obvious national security imperatives. But that doesn't mean that the critics can win future fights simply by more insistently portraying new globalization initiatives as national security threats. What it does mean is that the realist critics who have been concerned about national security from the start must better explain the indivisibility of the economic and national security dangers created by the cheerleaders' version of globalization.

At the same time, public officials and activists who have started to acknowledge national security exceptions to current globalization policies — call them globalization fence-sitters — must begin looking at the bigger picture as well. They can't be content to treat selected symptoms of reckless globalization only when political fevers rise. Unless they deal with the underlying economic policy disease, they'll be sucked into a war of attrition where the cheerleaders' edge in money and media will likely prove decisive.

Worse, fighting reactively wastes precious time. The longer the largely unguarded sinews of national economic strength keep weakening — from rising national debt, ongoing industrial hollowing out, and deeper foreign penetration into every sector of the domestic economy — the worse and fewer America's real options will become.

Thus the ports deal supporters made a strong point when they observed that the United States has permitted foreign control of American port operations for decades. But this problem didn't just emerge from the ether. Such terminal takeovers became practically inevitable when Washington let heavily subsidized foreign competition devastate the American commercial shipping industry.

More broadly, massive foreign acquisitions of maritime infrastructure and other huge chunks of the American economy result directly from longstanding — and ongoing — trade policy failures. By pursuing trade strategies that made mammoth deficits inevitable, Presidents and Congresses of both parties have sent to foreign governments and corporations literally trillions of dollars that must be ultimately be spent on U.S. assets. Walling off ports and other infrastructure systems without stemming the outflow of dollars through smarter trade policies is like plugging a dike while pouring more water behind it.

China represents another example of the new globalization fence-sitters missing the economic forest for the security trees. The last week alone provided two jaw-dropping examples of cheerleaders unwittingly spotlighting one of the biggest flaws of today's China policies. Former House Speaker Newt Gingrich praised the Pentagon's latest quadrennial strategy statement largely for recognizing the need for "more sophisticated capabilities to contain and deter China"— evidently forgetting his own unwavering support for liberalizing trade with the People's Republic despite Beijing's brazenly mercantilist economic policies and swelling geopolitical ambitions.

And Washington Post columnist Sebastian Mallaby, another tireless supporter of expanding trade with China as quickly as possible no matter the consequences, warned against risking a trade war with the People's Republic because it is "an opaque military rival."

Now Gingrich will go down in history as Wile E. Coyote to Bill Clinton's Roadrunner, and Mallaby is a strategically clueless former Economist reporter whose readership is difficult at best to identify. But what excuse do most Members of Congress and so many national security realists have for comparably incoherent behavior? On the one hand, these fence-sitters will condemn China's highly secretive military buildup and often bellicose diplomacy. They opposed China's bid last year to acquire the U.S. oil company Unocal. They even sometimes whine about China's predatory trade practices. On the other hand, most have failed to support a single measure that could have any effect whatever on the huge bilateral Chinese trade surpluses that have been enabled by Washington's neglect. After all, these surpluses — which are pushing China's foreign currency reserves steadily toward the $1 trillion mark — are major sources of funding for China's armed forces, and for Chinese purchases of U.S. Treasury bills, port facilities, and a growing number of U.S. companies.

Double shame on legislators and realists who fire endless verbal broadsides at China nowadays, but who favored awarding China with Most Favored Nation trade status in the 1990s, making that status permanent, and admitting China into the World Trade Organization in 2001. The last vote in particular greatly narrowed the circumstances in which Washington can curb China's power without resorting to military force — by limiting U.S. imports from China.

Internationally legal ways to restrict China's access to its vital U.S. markets may still exist. One may be the Hunter-Ryan bill in the House that would designate China's currency manipulation as a violation of U.S. trade law and open the door to retaliatory tariffs. Another may be the economy-wide trade-balancing tariff being pushed by USBIC.

But whether restrictions pass WTO muster or not, the choice before the fence-sitters could not be clearer: Either start using trade and other economic policies to stanch the hemorrhage of American wealth to China, or watch China's power and inroads into the American economy reach unmanageable proportions. Unless fence-sitters inside and outside Congress truly believe that China is a normal country (the Bush administration, of course, is hopeless on this score), they must work to end the normal trading relationship with the People's Republic that they so shortsightedly endorsed.

Immigration plainly is the issue on which the fence-sitters have made the most progress in Just Saying No to unfettered globalization. Indeed, even many Republicans in Congress are in open revolt against a White House clearly owned and operated by the Cheap Labor Lobby. Yet the immigration war, too, may be lost if restrictionists keep ignoring the economic root of the Broken Borders crisis — the goal of Western Hemisphere integration epitomized not only by the North American Free Trade Agreement but by the Central America Free Trade Agreement passed by Congress last year. In addition, a broader Free Trade Area of the Americas is still very much on the White House/globalization cheerleader agenda.

Even if U.S. border enforcement tightens significantly, these trade agreements — strongly supported by many legislators ostensibly up in arms about illegal immigration in particular — will remain powerful engines of emigration to the United States for several interlocking reasons. First, the agreements aim to meld first North America and then the entire hemisphere into a seamless economic unit — a single market similar to that emerging in Europe.

It defies all reason to suppose that goods and services and capital will eventually flow freely from Alaska to Argentina, but that labor markets will remain under decisive national control. As is already clear after more than a decade of NAFTA, the economic logic and pressure of integration will at the least produce a huge flow of illegals.

Second, it is ludicrous to argue — as have many left-of-center globalization critics — that Mexico would have been better off without NAFTA and thus less of a source of immigrants. Yet these analysts have been right as rain in noting that NAFTA's effects on Mexican agriculture specifically have greatly increased emigration to the United States. As they predicted, by exposing Mexico's subsistence corn farmers in particular to competition from America's world-class producers, NAFTA destroyed the livelihoods of millions of peasant families and left them few good choices but to stream northward.

CAFTA, which is structured much like NAFTA, is likely to have the same effects — especially since the agreement is as incapable as its predecessor of helping Central America cope with cutthroat Chinese and other Asian industrial competition, and thus providing factory jobs for displaced campesinos. Moreover, nothing known about the FTAA indicates that it will be an improvement.

Yet too many restrictionists inside and outside Congress failed to make the CAFTA connection, and an invaluable opportunity to get hemispheric economic integration right was squandered. Will they wake up before the Central American legal and illegal tides rise even higher? Or before the FTAA brings all of South America into this failed framework? Not if trade policy remains a blindspot.

Americans paid a tragic price when most of their leaders and strategists failed to connect the terrorism dots before 9-11. Today, the dots between our highest profile globalization challenges and U.S. trade policy failures are still usually viewed in isolation. Until they are connected much more often, the nation's security, sovereignty, and social cohesion — along with its first-world economy — will face ever greater risks.

Thanks for the ping along.

"Congress's indifference to the outsourcers' lobby was especially instructive."

Perhaps Tonelson overstates this indifference. The Dubai results was a case of one. Foreign operation did not rear its head before. What was unique in Dubai was the many references to the UAE relation with Israel.

What may be happening is a growing separation between the interests of Israel and those of the U.S. as expressed by the President. A gathering storm pits supporters of one world trade as our greatest need and supporters of combating Islam as our greatest need. Bush has come down on the side of the traders. Congress did not.

By pursuing trade strategies that made mammoth deficits inevitable, Presidents and Congresses of both parties have sent to foreign governments and corporations literally trillions of dollars that must be ultimately be spent on U.S. assets.

Indeed, from the latest International Investment Position report from the federal Bureau of Economic Analysis (released June 30, 2005), foreign ownership of U.S. assets stood at around $12 trillion dollars at the end of 2004:

Foreign-owned assets in the United States increased $1,739.3 billion to $11,537.0 billion with foreign direct investment in the United States valued at current cost, and they increased $1,846.0 billion to $12,515.0 billion with foreign direct investment in the United States valued at market value.
Foreign official assets in the United States increased $414.9 billion to $1,982.0 billion. The increase was largely attributable to net purchases of U.S. Treasury securities.
Foreign holdings of U.S. securities other than U.S. Treasury securities, excluding official holdings, increased $579.7 billion to $3,987.8 billion. Foreign holdings of U.S. stocks increased as a result of large price appreciation and modest net foreign purchases. Foreign holdings of U.S. bonds increased mostly as a result of net foreign purchases.
Foreign holdings of U.S. Treasury securities, excluding official holdings, increased $96.5 billion to $639.7 billion, mostly as a result of sizable net foreign purchases.
U.S. liabilities to private foreigners and international financial institutions reported by U.S. banks increased $383.5 billion, to $2,304.6 billion, mostly as a result of financial inflows of $322.6 billion.
Liabilities to unaffiliated foreigners reported by U.S. nonbanking concerns increased $126.9 billion to $581.3 billion, mostly as a result of financial inflows of $124.4 billion.
Foreign direct investment in the United States valued at current cost increased $123.0 billion to $1,708.9 billion, mostly as a result of net financial inflows. At market value, foreign direct investment in the United States increased $229.7 billion to $2,686.9 billion, as a result of net financial inflows and price appreciation of owners’ equity resulting from an increase in U.S. stock prices.
U.S. currency held by foreigners increased $14.8 billion to $332.7 billion.

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