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Commentaries & market updates.
Biting the Hand that Feeds you
Biting the Hand that Feeds you
This week, as statistics revealed that China has surpassed Japan as the world’s largest holder of foreign reserves, the U.S. Congress continues to threaten China with 27% tariffs on their exports to the U.S. The move, which is akin to a cornered gunman turning the pistol on himself and threatening to pull the trigger, reveals the extent to which American politicians fail to comprehend the true nature of the current Sino-U.S relationship.
In desperate need of capital, America is hardly in a position to insult those providing it, or dictate the terms by which they do so. However, the latest tough talk on China comes shortly after Congressional action which blocked key purchases of American assets by foreign interests. Such posturing sends a very dangerous message to our creditors. If as a nation we have decided to sell off our cows to pay for imported milk, we can not complain when our trading partners actually show up to collect the animals.
For a nation so dependant on the kindness of strangers, it is amazing just how arrogantly we treat them. There were no valid reasons to block Chinese owned CNOOC from acquiring US-based Unocal, especially considering that 80% of the latter’s assets were outside the U.S. The same holds true for blocking DP World’s proposed acquisition of various U.S. port facilities, especially since the subject ports were already foreign-owned to begin with. Our failure to allow the deal appears to have been racially motivated; hardly the message we want to send our Middle-East allies.
As a result of the unprecedented foreign-financed consumption binge in the U.S., it is likely that nearly every major U.S. asset will ultimately pass into foreign control, including most companies in the S&P 500 and trophy properties in major U.S. cities. As America lacks the industrial capacity necessary to redeem its IOU’s with actual consumer goods, access to capital goods and domestic assets is all that gives its currency value. Restrictions on the ability to acquire such assets will diminish foreign interest in accepting dollars in exchange for exports, and will dissuade foreign governments from holding huge reserves of dollars that they cannot hope to spend.
On a somewhat related subject, I happened to run across a French businessman, traveling to Australia via Singapore. He confessed to me that he used to fly that route though Los Angeles, but that now he avoids U.S. airports whenever possible. He further confided that this preference was common among Europeans and Australians alike, as a result of the added security hassles and the rude manner in which foreigners were treated by American airport security personal. You know we have a problem when the French accuse the Americans of being rude!
In conclusion, the U.S. is hardly in a position to continuously bite the hands that feed it. The obvious danger is that one day those hands will tire of being bitten and instead look for more friendly mouths to feed.
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