Trump's foolish economic Cold War with China
Donald Trump is a historically unpopular president. And the just-passed Tax Cuts and Jobs Act may well be his peak legislative accomplishment. It's hard to see Congress passing Medicare reform or a big infrastructure spending bill before the November midterm elections, which might well bolster Democratic power in Washington for the second half of President Trump's term.
But none of that necessarily means Trump will be a lame duck for the next three years. And this might especially be true when it comes to one of his favorite issues, trade. While presidents typically need Congress to greatly expand trade, such as passing free-trade deals, they have considerable power to stifle trade — as the protectionist Trump has already shown by withdrawing the U.S. from the Trans-Pacific Partnership trade deal. That action arguably remains his most significant economic and geopolitical move to date, even more than the tax cuts. Moreover, 2018 may see Trump declaring the U.S will leave the North American Free Trade Agreement.
But although we're just a few days into the new year, the Trump administration has already demonstrated a disturbing new use of a potentially powerful anti-trade tool. On Wednesday, the Trump administration blocked a $1.2 billion purchase of Moneygram, the Dallas-based money transfer company, by Ant Financial, an electronic payments firm controlled by Chinese internet tycoon Jack Ma. The deal failed to get approval from an interagency panel that reviews the potential national security impact of foreign investment.
This isn't the first time the Committee on Foreign Investment in the U.S., chaired by Treasury Secretary Steven Mnuchin, has acted against China. In September, CFIUS blocked Lattice Semiconductor from selling itself to a U.S.-based private equity firm that had Chinese funding.
But while stopping that deal had a least a patina of national security implications, Moneygram is an edge case at best. We're not talking about Goldman Sachs here. Moneygram's average transfer is only about $300, and the personal data that customers give — supposedly a big federal concern — is about what you would hand over when signing up for a fitness club membership. Based on the government's reasoning, Jack Ma would also be blocked from purchasing, say, Gold's Gym. Also, as Moneygram pointed out, there would be no post-merger integration of its data systems with Ant, and American data would continue to be stored in U.S.-based servers. At this point, it's actually hard to see what sorts of Chinese investments the Trump administration would allow given the ubiquity of customer data in almost all businesses these days.
And that's a problem. Overall, Chinese companies have invested nearly $150 billion into the U.S. since 2000. What's more, Chinese investment in the U.S. has greatly increased in recent years, from under $10 billion in the 2000s to nearly $50 billion in 2016. This is a good thing! Indeed, one thing the new tax law is supposed to do is encourage more foreign capital to flow here. The dollars coming from China dipped somewhat in 2017, but it would be reasonable to expect $20 billion to $25 billion to be a new investment baseline, according to my AEI colleague Derek Scissors. That is, unless the Trump administration continues to use national security as an excuse to fight an economic Cold War against China.
That would be a mistake. America, as the world's leading market economy, should continue to set an example of the sort of economic openness that supports global growth. But to other nations, the Ant-Moneygram decision probably looks less like a national security move than a blatantly protectionist one. After all, Ant Financial had beaten Euronet, a money-transfer rival based in Kansas, in winning Moneygram — Trump's America First ethos in action. And if even the U.S. is going to favor its companies over foreign competitors, then maybe that will become the new international norm, undoing decades of work to create a more free-flowing global trading system. Which, of course, might be just fine to some in the Trump administration, including the president himself. But other nations don't need any further encouragement, for example, to try to hobble America's tech giants.
Not that the U.S should take a hands-off policy to all Chinese investment. Scissors argues, for instance, that Chinese firms and individuals should not be allowed to buy advanced technology that could have military uses. And Chinese firms that receive stolen intellectual property should be banned. But such efforts should work to reinforce trust and support for globalization. What Trump is doing, using national security as an excuse for closing the American economy to overseas competition, will more likely achieve the opposite effect.