from Follow the Money

Are Americans still Anglo-Saxons?

January 3, 2008

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So asks Arthur Goldhammer, who somehow manages to find time to track the latest US polling data as well as Nicholas Sarkozy’s latest romance and the latest French debate on the euro’s global role.

The US and France, it seems, are not as quite as different as most economic commentary assumes. Not after France banned smoking in cafes. And not when nearly 60% of the US population, according to a recent Wall Street Journal/ NBC news poll, thinks an increasingly global US economy is a bad thing. Only about 30% thinks it is good thing.

Even if Huckabee fades, his rise underscores one of the more surprising outcomes of recent polling -- namely that a majority of Republicans now has doubts about trade. There are more low-income Christian evangelicals in the modern Republican party who fret about competition from China than private equity barons who fret that they won’t be able to sell to the government of China.

I suspect that some -- though not all -- of America’s angst about globalization reflects the fact that the US now sells far more financial assets to emerging market governments than goods to emerging market citizens. Over the last four quarters, the US sold about $75b in goods and services to China and, according to the US data which almost certainly understates the real total, nearly $210b in financial assets.

China’s economic growth was supposed to be good for the US because it created new markets for American goods and services -- not because it allows China to supply even more subsidized financing to the American households or allows American residents to sell their companies to the Chinese government (in all of its guises) for a higher price than anyone else is willing to pay.

The data assembled by the polling report surprised me in a lot of ways. I would not have guessed that two times as many Americans think globalization has been bad for the US economy as think it has been good for the US economy. I would have expected globalization to lose, but not by quite that margin..

But I also was surprised that in April 2006, an LA Times/ Bloomberg poll found that far more Americans favored allowing China to "reform its exchange rate at its own pace in order to maintain good economic relations" than "forcing China to move to a market-based currency that will help reduce the trade deficit."

My guess is that the wording of the question shaped the answer - the emphasis of the question was on forcing the China to change rather than on say "offsetting the subsidy from China’s undervalued currency." An NBC news/ WSJ poll (link here) at about the same time found that only 22% of Americans thought the US had been too tough or tough enough on China, and nearly 60% thought the US had not been tough enough in "economic and business negotiations with China."

And only 15% of Americans favored letting China but Unocal; 73% were opposed. Yet if China "reforms" its currency at its own pace, all signs suggest that China’s government would either need to buy an awful lot of bonds or a series of Unocal sized companies to control the pace of RMB appreciation.

Far more Americans (31%) would not allow Arab countries to invest in the US at all than would allow Arab countries to invest in all parts of the US economy (8%). A majority though favors Arab investment in some parts of the US economy. Vegas, apparently.

A majority also thinks that "Restrictions on foreign companies are more important than the job creation that these companies could bring to the United States." (from an April 2006 LA Times/ Bloomberg poll).

That doesn’t sound very Anglo-Saxon, or very neo-liberal.

Most of the questions on foreign investment implicitly assumed that the investment was coming from private firms not from foreign governments. I would be interested in seeing how selling say majority control of a large US bank to the government of China polls. That isn’t an entirely hypothetical question. Suppose the Morgan Stanley needs more money, and it the recently recapitalized China Development Bank (CDB) is willing to provide the funds. The combined investment of the CDB (itself owned by the CIC) and the CIC would likely trigger a CFIUS review.

Somehow I doubt the sale of iconic US companies to the government of China would reduce Americans concerns about globalization. At the same time, I doubt most Americans are all that keen to see the government of China use its huge dollar holdings to support the outward expansion of Chinese state firms.

The current pattern of globalization is sustained by the accumulation of over a trillion dollars of financial assets by emerging market governments - with the majority of the asset growth concentrated in non-democratic governments.  

Yet I am not sure that a majority of the citizens of the main creditor countries would vote to invest so much in the US, particularly on terms that almost guarantee large financial losses.

The market currently expects the RMB to appreciate by 9% this year. The CIC raises funds in RMB at between 4-5%. If the CIC gets 13% on its dollar investments, it could still end up losing money. SAFE is guaranteed to lose money if it doesn’t take a few risks.

At the same time, I would bet that there is not a majority in the US that favors selling half a trillion dollars worth of US companies - let alone more - to emerging market governments.

Talk about political risk.

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