Trade Dominance

Me two years ago:

I surveyed the last ten China new articles in the Post and NYT. … Top US newspapers are in full fledged China bashing mode. (more)

I expect similar results today. Often, hostility to foreigners appears as opposition to letting locals buy stuff from foreigners. Yet sometimes it also appears as opposition to letting locals sell stuff to foreigners:

As China moves to invest billions in businesses around the world, one major industrial nation has so far soaked up very little of the cash: the United States. … Chinese business owners who want to invest in the United States say they often have a difficult time obtaining a U.S. visa to be able to travel and see projects. …

In 2005, the Chinese oil company CNOOC dropped its $18.5 billion bid for the U.S. oil firm Unocal, after some members of Congress expressed security concerns and asked whether CNOOC had unfair access to cheap financing. In early 2011, China’s largest maker of telecommunications equipment, Huawei Technologies, withdrew its bid for the assets of the American company 3Leaf after a review by a U.S. government panel on foreign investment raised concerns about Huawei having links to China’s People’s Liberation Army, which the firm denies. “After that, Chinese investors are kind of lost and bewildered; they don’t know what they can invest and what they can’t.” (more)

Presumably this stupidity is due to some sort of psychology, but what? Why object to both buying and selling to foreigners? Can people really think both sides are hurt by a trade?

My guess: because firms are larger than customers and employees, we see the firm as dominant in both firm-customer and firm-employee relations. So buying into ownership of a firm is buying into a position of dominance. Thus people object both to locals buying stuff from foreign firms, and to foreigners buying into local firms, because they object to locals being submissive to foreigners.

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  • Will

    I think a lot of it also has to do with ownership of capital. Goods purchased from China are seen as temporary, while the money given to them as seen as permanent – thus, fears of debt to China giving them power over us and making us lose in a long-term competition. But since firms are permanent, purchasing them is not a long-term losing move.

    Is there a way to distinguish between capital and size as sources of perceived power?

    • http://hanson.gmu.edu Robin Hanson

      I think people would also object to locals buying long term physical capital from foreigners, like cars, building materials, or machine tools.

      • IVV

        How about firms? Would there be American opposition to Americans buying CNOOC, for example?

  • James

    Anti-foreign bias and mood affiliation. Foreigners are bad, anything involving foreigners is bad. What about this doesn’t that explain?

    • http://hanson.gmu.edu Robin Hanson

      We like our firms selling stuff to foreign customers.

      • http://www.gwern.net gwern

        We only like selling *some* things. We’re scared stiff of selling them weapons or the wrong technology (ask Boeing).

      • http://hanson.gmu.edu Robin Hanson

        Yes, those items are framed as causing the holder to have dominance.

  • richard silliker

    My guess: ideological differences and the “fact” that the one with the gold makes the rules.

  • J Smart

    I think it may be the tendency to view physical goods and firms involved with the production of those physical goods as intrinsically more valuable than service or other intangible oriented firms.

    We don’t mind so much when foreigners invest with finance firms or when we’re buying information, or outsourcing jobs like programming to foreign firms, but when a manufacturing company moves a factory offshores, we’re up in arms.

    We don’t even mind so much, for instance, that Fiat bought out Chrysler because we’re used to ownership shifting around in the auto industry without much change in where the manufacturing happens.

  • http://disputedissues.blogspot.com Stephen R Diamond

    Your argument is sophistical. You show that opposition sometimes takes the form of opposing specific instances of buying, sometimes of opposing instances of selling. Then you complain that they can’t coherently oppose both buying and selling, but whether the transactions are cases of buying or selling is incidental to the motivation in the instances. .

    • steve

      I think you are correct. The opposition against the buying and the opposition against the selling need not be the same groups.

  • Leo

    If two people trade who are both Americans then the gains from trade go only to Americans. If an American and a Chinese person trade then not all of the gains go to Americans, regardless of who is buying or selling.

  • rapscallion

    You never do any kind of deal with the Devil. Whether he’s buying or selling, his wiliness most likely means you are getting the crap end of the deal.

  • Alaric

    I don’t think this is particularly puzzling.

    If there is concern over the relative power of other nations then not wanting to increase their power by running a trade deficit with them is not crazy (it might be wrong but its not obviously wrong). Not wanting to increase the other countries power by allowing them to control firms that are important to national economic or military security is also not crazy (I don’t see that 3Leaf comes into that category.).

    In the light of “real politik” concerns such as this it seems reasonable. However, the real politik concerns may or may not be reasonable; it is not obvious to me either way.

  • Alaric

    Another way of looking at this.

    Being against a trade deficit is not being against buying things from China. Its against trading bond like assets for non-debt like goods.

    How different is this from not wanting to trade assets such as firms for cash (reducing debt)?

    Lets imagine that the bulk of the trade deficit is due to the purchase of consumption goods as opposed to capital goods used in production. Under these circumstances the first case is the sacrifice of future income flows for present consumption. The second case is the sacrifice of one kind of future income flow (firms) for another kind of future income flow (debt).

    In this case it is not obvious that being against the first kind of trade necessitates being either in favour of or against the second kind of trade.

    That they are not logically inconsistent policies does not of course imply that they are good policies. Government intervention in trade, particularly the American governments, tends to be driven by cronyism and lobbyists as opposed to concern for the well-being of the American public.

  • http://entitledtoanopinion.wordpress.com TGGP

    At CafeHayek the often say that a trade deficit is the same thing as a capital account surplus. Back int he 80s people worried about the Japanese “buying up America”. The question is whether people object to their countrymen buying up/investing in foreign companies or selling them regular tradeable goods. It could be that we think being in debt is very bad. At least, those of us who are not investment bankers.

  • James

    It’s often illegal in wartime to trade with the enemy.

    http://en.wikipedia.org/wiki/Trading_with_the_enemy

    Do you think such laws are foolish, too?

    Perhaps people reason by analogy to such cases, and perceive a taboo or faux pas in large deals with parties from countries that frighten them.

  • http://jonathan.graehl.org Jonathan Graehl

    Robin’s argument resonates with how I remember feeling in reading such stories. We understand that consumers are marks and producers their masters.

    The world’s love of U.S. music, film, and fashion (gradually eroded by recognition of actual cool stuff produced elsewhere, and alternative old-world cool-brokers like France) was quite a salve for U.S. citizens’ egos.

    Others are right about debtor=low status. Selling the seed corn, Esau selling his birthright to Jacob for some stew, etc.

  • http://hanson.gmu.edu Robin Hanson

    Alaric and Jonathan, neither buying goods nor selling firms directly increases debt. It all depends of course on what you were going to do instead.

  • tom

    “Stupidity” is a foolish word choice by Robin, based on the examples in the article he cites. Robin says he’s talking about trade, but he’s really just talking about the special situation of trade with a would-be hegemon.

    Even if we accept the idea that trading with a country means not just selling and buying goods but also companies, the CNOOC and Huawei deals are categorically different from most international trade deals. Give us examples about US refusals to sell companies to Mexicans or Germans or Canadians. And give us examples of China selling important Chinese companies to non-Chinese owners.

    CNOOC is a branch of the Chinese government that wants to accomplish the Chinese government’s goal of controlling more sources of energy for China. Huawei is an enormous telecom company that cannot operate and succeed without the continuing favor of the Chinese government. These have very little to do with Apple using Foxconn to build hundreds of millions of ipads, or Chinese parts suppliers making parts for Korean cars sold in the US.

    CFIUS may or may not be the best thing for US citizens, but you need to address CFIUS and concerns that are specific to China. You’ve spoken before about how China is different and may very well come to dominate the world as the US did before. If the US thinks that CNOOC and Huawei’s bids were a part of that effort, can you tell me why we’re better off just going along with it? Can/should we require that China be willing to sell Chinese companies to non-US companies?

    Robin, you need to explain why the best US strategy with China is to have no limits at all on China’s purchase of any goods or companies anywhere.