Certainties From Tsinghua: $3 Lunch and Evidence Donald Trump Won’t Secure a Meaningful Trade Deal with China.

When I was a student at Tsinghua, I remember constantly complaining about the cafeteria food. In general, I struggled getting the amount of protein I needed, and a  lot of the food was oily. Picking which vegetables to eat was always difficult, because so many of them seemed to just soak in salty, oily brine.


Campus has a number of cafeterias; this one was my favorite. Each floor has perhaps 10 stalls, and each stall on a floor is loosely affiliated with one style/region of food. This cafeteria was my favorite because the fourth floor is devoted to Sichuan cuisine.


热饮冷饮 – Hot Beverages and Cold Beverages 西式面- Western Style Bread

Although I consistently fretted over protein and oily vegetables, the food was good and -perhaps most importantly- cheap. Here are examples of what I ate:


I spent an average of RMB 20 per meal (something akin to $3).  I’m certain that this is the best cafeteria food that one can buy for $3.

Tsinghua also taught me another certainty: Donald Trump is set for failure regarding the coming trade deal with China. Let me show you:


Consumption-led growth. The decisive role of the market. Tsinghua has an amazing library. I was floored that there were so many books in foreign languages (the English selection is enormous).  I was also floored to see that many Chinese think-tank publications on economic reform were translated into English. I devoured them, nodding my head in agreement and proud at the tough policy recommendations they made: transfer state wealth to Chinese people in order to have a balanced economy.

The Chinese economic model is built upon transferring wealth from households, consumers, and savers to corporations, producers, and investors. This is best seen in China’s comically low household consumption rate.


As China’s economic model has progressed, Chinese households have enjoyed an increasingly small share of the nation’s wealth. Corporations, both ‘private’ and state-owned, have enjoyed an increasingly large share of the nation’s wealth (as has the richest in China). This ‘problem’ has been on the Chinese government’s radar since at least 2007.

In 2007 Premier Wen Jiabo cautioned, “”the biggest problem with China’s economy is that the growth is unstable, unbalanced, uncoordinated, and unsustainable.” This prompted IMF economists to write, in 2007, about strategies to have consumers share a larger percentage of national wealth.

However, economic reform wasn’t planned until Chairman Xi Jinping took over in 2013. Economic reform plans were immediately organized:

1.) The market had been defined as a “basic” role in allocating resources since the country decided to build a socialist market economy in 1992. In 2013, The Communist Party of China defined the market’s role as “decisive” in allocating resources. This importance cannot be underestimated.


It is common for state-owned enterprises to have pictures to pay homage to Chairman Xi in their lobby (Forgive the poor quality).

2.) On November 12, 2013 in the Third Plenary Session of the 18th CPC Central Committee, Chairman Xi said the following regarding China’s economic reform:

The key to establishing a sound socialist market economy lies in striking proper balance between the role of the government and that of the market, so that the market can play a decisive role in allocating resources and the government can play its own role more effectively… Letting the market play a decisive role in allocating resources will mainly require economic reforms, but it will also inevitable affect politics, culture, society, ecological progress, and Party building.

3.) On April 8, 2013 at the Boao Forum for Asia Annual Conference, Chairman Xi said the following regarding China’s economic reform:

We will continue to enhance the rule of law and actively improve our investment environment so that all enterprises can enjoy equal access to the factors of production, market competition, legal protection. The Chinese market can become fairer and even more attractive… China will never close it’s door to the outside world… We will open up new areas and enable deeper access… We firmly oppose protectionism in any form, and we are willing and ready to solve economic and trade differences with other countries through consultation.

4.) On May 26th, 2014 at the 15th Group Study Session of the Political Bureau of the 18th CPC Centeral Committee, Chairman Xi said the following regarding China’s economic reform:

We should reduce the government’s involvement in resource allocation and its direct interference in microeconomic activities. We should step up efforts to develop a uniform market system characterized by openness and orderly competition, and set fair, open, and transparent market rules.

Xi in Davos

5.) In 2017 at the World Economic Forum in Davos, Chairman Xi said the following regarding ‘free trade:’

Whether you like it or not, the global economy is the big ocean that you cannot escape from. Any attempt to cut off the flow of capital, technologies, products, industries, and people between economies, and channel the waters in the ocean back into isolated lakes and creeks, is simply not possible.


These books which I vociferously read at Tsinghua are remnants, relics of this forgone economic reform. Chairman Xi’s economic reforms, as I have been writing about for the past two years, have been complete failure. China is backtracking on reform, encouraging state-backed growth, reducing competition, and exacerbating the economic slowdown already underway. According to Ruchir Sharma at Morgan Stanley Investment Management, it now takes $3 of debt to create a dollar of growth in China. In the face of economic reform failure, China is pumping debt into large state-backed corporates while the private sector is squeezed out.

A Chinese dictator tried to force reform. That reform failed.


The United States is seeking the following changes in the Chinese economy: trade deficit reduction, IP protection, cease market distorting subsidies, end of cyber intrusions, and end technology transfer.

The idea that the United States would be able to force large, structural reform in China when a Chinese dictator could not is absolutely ridiculous. The idea that Beijing is unable to move on the US requests, most made 9 months or even years ago (IP Protection), and that another 60 days will be enough time for them, seems somehow more ridiculous.  The hubris of the United States position is overwhelming. The Xi speeches, the policy reports from think tanks, these are fossils of failure that the United States should heed.

tweet 1

CNBC is also reporting that President Donald Trump said he will be discussing the criminal charges against Huawei with US attorneys and attorney general in the coming weeks. Is the United States judiciary no longer independent? If the United States accepts a trade deal that backs Chinese purchases of US goods to reduce the trade deficit, America is run by a spineless swamp with no sense of the lack of economic freedoms that put the US in this position to begin with.

The White House would do well to look at Chinese economic planning relics from 2013 or read Chairman Xi’s speeches.

Thanks for reading.


Huawei and A Bifurcated Tech Future

I thought more than I would like to admit about how I could fit the following phrase into this blog post:

It’s my way or the Huawei.

And with that off my chest, lets get to today’s topic: the near future of tech.

Any definition of emergent technology should include the following: information technology, robotics, green energy and vehicles, aerospace equipment, oceanic engineering, new materials, medicine, medical devices, agri-tech. Very conveniently, these are the sectors explicitly slated to gain state support in China under Made In China 2025.


Crucial to emergent technology is infrastructure to move vast amounts of data and information. Only a few telecommunications companies are positioned to provide the complex solutions these new industries demand. 5G (telecommunication networks), mobile devices, and global services are necessary is securing the success of emergent technology.

Luckily for the world, China’s Huawei is positioned to provide such solutions.

The Pride of China

I studied Chinese at Tsinghua University. The view from my chair was that of a large blackboard. 20180403_113153

Note the camera on the top left. There was also a camera in the back of the room. 

Sitting to my left in one of my classes was a young Swiss man. On a Friday morning, he told his language partners that he was in the market for a new phone. On Monday morning he walked into class with a new Huawei phone. My teacher, a brilliant young graduate student at the neighboring Beijing Language University (北京语言大学), was floored.

“Why didn’t you buy an iPhone?” she asked.

He replied, “Huawei phones are much cheaper and just as good. I don’t like iOS anyway.”

“As a Chinese, I am so proud. Huawei is the pride of China,” She beamed.


The ‘pride of China’ should be its food. This was a normal lunch at Tsinghua. It was delicious.

She was right. National champions, large companies that enjoy massive amounts of state subsidies and are protected from competition, are a distinct part of the national identity. Apple is not a competitor. Apple is America. Huawei is China.

Huawei is China

So lets expand on Huawei. Their Wikipedia page is absolutely fascinating:

Wiki capture

A warning about buzzwords and advertising? The following quote is worth thinking about. From Huawei’s Wikipedia:

Although successful internationally, Huawei has faced difficulties in some markets, due to allegations – particularly from the United States government – that its telecom infrastructure equipment may contain backdoors that could enable unauthorised surveillance by the Chinese government and the People’s Liberation Army (citing, in particular, its founder having previously worked for the Army).

Huawei has faced difficulties in some markets, due to allegations- particularly from the United States government. Does this hold water? Let me list some links.

Huawei blocked from bids in England.

Germany is drafting new rules for how to deal with Huawei.

Norway’s PST warns against Huawei.

The Czech Republic’s cyber security agency reports that Huawei is a national security threat. (This is particularly worth following because China has invested heavily into the Czech Republic, and Huawei has had a contract to fulfill the communication needs of the president and his staff for the past four years.)

Lithuanian intelligence reports that Huawei is an intelligence arm of China.

Rumors in Italy of banning Huawei from 5G infrastructure are ongoing.

Last month in Poland, a Huawei employee was arrested as spy for China. Huawei has responded by offering to build a cyber security center in Poland.

FBI raids Huawei’s San Diego Office.

It is certainly true that the United States was early in its concern of Chinese (Huawei) infrastructure investments. However, to say now that concern is solely or mostly propagated by America is dishonest.

Bifurcated Tech

I said something to this point relatively recently on China Unscripted (episode 20): there is a growing Cold War between China and America. That Cold War is not being waged in proxy wars or through arms races. The new Cold War is being waged through a race to emergent tech, economics, and business access.

The truth about Huawei is pretty simple. If the new Cold War is being fought in emergent tech, Huawei is going to play a key role. It is an arm of the Chinese Communist Party.

Huawei Capture

Examples of communist control include the following:

1.) Huawei has a party secretary. Party control of Huawei is explicit. Its in their Wikipedia page.

2.) Huawei enjoys lending at the direction of Central Huijin.

3.) Huawei enjoys price setting and input discounts from the NDRC.

Given these facts, it is almost intuitive that Developed countries decouple from Huawei and Chinese tech in general. What we are witnessing across Europe, North America, and Australia is decoupling at a time when Africa, South East Asia, Russia, and the Middle East are increasingly embracing Chinese tech. We are witnessing a technological divide. With that tech divide, we are seeing a divergence in public opinion and thought.

Consider Chairman Xi’s recent trip to visit the new media operation of People’s Daily, the party’s mouthpiece. He spoke at length on the importance of “boosting integrated media development and amplifying the mainstream voice” in public communication. Mainstream voice indeed.  The mainstream voice seems to be Xi’s way or the Huawei.

(Nailed it).

Thanks for reading.



What Caused The Great Recession

Savings, Investment, and My Worldview

Riemann Surfaces are pretty neat. Frankly speaking, anything with complex numbers – sometimes referred to as imaginary numbers- is just cool. I think there is just something intrinsically pleasing when they are modeled.

riemann surfaceCool, right?

Economics, like Math, has many tools . This blog has tended to use one or two tools when addressing China and Chinese trade policy. The most noteworthy of which is the following:

(M – X)   =   (I – S) +   (G – T)

Don’t panic. The function above states that a trade deficit (imports-M- less exports-X) is equal to the savings deficit (investment-I- less saving-S) plus the government’s fiscal deficit (government spending-G- less its tax revenue-T).

This blog has consistently talked about policies that influence national investment, savings, and consumption rates, because that is a key tool for how I understand China. Consider the picture below:

jinanxi station

My first corporate training with DuPont Pioneer actually took place in Shandong Province.  I took a bullet train from Beijing to Jinan (Google Maps link) to train Pioneer staff. The picture above is one of Jinan’s railway stations. I was awestruck by how large it was. I was awestruck by how empty it was.


In China you return tickets to your company in order to get reimbursed for travel expenses. I wish I could have kept all of my train tickets. Thanks to DuPont for the first class travel.

One could look at the empty infrastructure in Jinan and see wasted money (NY Times link – Good read), but I believe a better mental exercise is to determine what it says about the relative power of different parts of the economy. China and its state banks deploy large swaths of capital to local infrastructure projects, so China’s investment rates are quite high. Investment rates are so high because of a set of policies that force money from savers and consumers to investors and producers: environmental degradation, artificially low interest rates, tariffs, and state owned enterprises – to include banks. This means that Chinese people receive a smaller portion of GDP so household consumption is low and savings are high. If there are 4 sectors to an economy- normal households, wealthy households, businesses, and governments- we can observe the ratios of investment, savings, and consumption to paint a story about who is benefiting in a given economy.

This ratio of investment and savings also fits into trade. I have previously written about how domestic policies – like tariffs – affect the balance of investment and savings in an economy and can impact foreign trading partners. This reasoning- domestic imbalances leading to foreign trade friction- has been a theme of my blog. It greatly contributes to my worldview.

Tsinghua University and What Caused The Great Recession

pierce at tsinghua

I was blessed to study at Tsinghua University (清华大学). At Tsinghua I, unsurprisingly, found myself attending meetings with the Tsinghua Economics Club. It was there that I inevitably talked to my Chinese peers about the real economy and how China’s domestic imbalances affected America. China, I contended, was unfair.

My thoughts were met with poignant questions: is there a link between the real economy, trade imbalances, and East Asian capital account surpluses with America’s financial stress and the Great Recession?

I found the answer from BIS, the Bank for International Settlements. Consider the following pictures that show trade flows and banking flows.

china banking flowschina trade flows

What imploded in 2007-2008 were not Sino-American financial relations, but the interlocking claims between American and European banks. I’ve written about this previously. My favorite math, my worldview based on investment and savings rates, was lacking when confronted by questions at Tsinghua.

gross capital flows Discussions at Tsinghua taught me that gross capital account flows matter. They matter a lot. In 2007-2008 Europe’s banks were at least if not more dangerous than their American counterparts. They straddled three giant credit bubbles: in the US, in the hot spots of the Eurozone, and in Eastern Europe. Their leverage was enormous, their capital laughably thin, and unlike their US counterparts they had considerable currency mismatch on their balance sheets. They needed to raise dollars to hold huge portfolios of America subprime. Their primary home funding sources were in European currencies.

european leverage

European banks went to great lengths to underwrite mortgage backed securities. Did you know that from 1997 to 2007 it was not an American bank that was the top underwriter for MBSs?

underwriters of mbs

Furthermore, we can clearly observe European banks changing safe assets to short-term, speculative assets in a different currency.

european changing investment

When emerging markets like China acquired US safe assets, they crowded out other investors and created the opportunity for private financial engineers to launch the securitization boom. The industry generated a new, private source of safe assets. European banks bought into short term gross flows (both in and out) while comically leveraged. In fact, the earliest sign of coming collapse was Paribas’s announcement in 2007 that it was closing its US real estate funds, for lack of liquidity in the market. Following as it did on the difficulties of several smaller German banks, one might think of this as a moment of European crisis.

So, again, what caused the Great Recession? It is worth repeating. Emerging markets like China acquired US safe assets, crowding out other investors and creating the opportunity for financial engineers to launch the securitization boom. The industry generated a new, private source of safe assets. European banks poured money into America to shuffle assets into MBSs. A European banking glut was a crucial – if not the crucial- driver.

There exists different rule sets for different economic segments. In 2008 central bank liquidity swap lines were deployed within a familiar trans-Atlantic frame. The swap lines still mapped the contours of the cold war and world war II. On the new frontier of the global economy none of that soft tissue is present- Russia, India, and China still have no swap lines. Rule set mismatches are always friction points. I see less-and-less global savings-glut imbalances, while I increasingly see global rule set imbalances. I am pessimistic about our ability to resolve these discrepancies.

BIS study links (all worth reading):

Tracking the International Footprint of Global Firms

Global imbalances and the financial crisis: link or no link?

A key currency view of global imbalances

My favorite studies on the Banking Glut:

Global Banking Glut and Loan Risk Premium

ABS Inflows to the United States and the Global Financial Crisis


Chinese Propaganda Insights

The key take away from Chinese propaganda is, rather intuitively, in the messages propagated. This blog post examines the four most common themes: communist party events, morality, prosperity, and Chairman Xi Jinping.

Honestly, I have an unhealthy fascination with Chinese propaganda due to two reasons. First, most foreigners don’t speak Chinese and are unable to differentiate propaganda from normal marketing advertisements.  Second, propaganda in China is everywhere. Let’s look at a few examples.

In 2017 I lived east of Beijing proper in the Tongzhou District (Google maps link). This blog post’s photos were taken in Beijing around that time.


The picture above is an average street in Tongzhou and is indicative of how most tier two cities appear. The posters covering the walls are separate propaganda pieces. How many propaganda posters can you count? This scene, streets lined with propaganda, is a common occurrence in China, and mass volume of propaganda isn’t limited to print. Electronic billboards are used in the center of the city to spread propaganda messages. Note the dozen red backed electronic billboards below (also note the air pollution).

20171025_112140 20171025_113918

Some propaganda is used to herald Communist Party events. The above signs reads, “喜迎十九大 创造新辉煌” or “Happily greet the 19th Party Congress. Bring about new glory.”  Perhaps what is most impressive about Chinese propaganda is how much the size of medium being used varies to fit into available public space. Propaganda posters are often posted on walls and are the size of standard movie posters found in theaters across the world. Walled off construction sites present a larger space to fill.


中国梦 安全梦 抓好安全生产 建好‘北京城市副中心

Chinese dream – Peaceful dream – Successfully create safety – Build Beijing


中华圆梦 万马奔腾 – Realizing China’s Dream – Full steam ahead

These large posters, again usually lining the walls of construction sites, have always been the most fascinating. This medium has the most room and is much more likely to advertise morality. The left most piece of propaganda in the picture above lists the 12 Socialist Core Values, a topic I will discuss later.



诚信经营 讲诚信有良心

Operate honestly, Speak the truth and be good-hearted

The large, perhaps 18 foot, poster above is fascinating. The moral message is simple: be honest. The bowling ball is labeled “honesty.” The bowling pins are labeled foreign trade scams, pyramid schemes, illegal advertising, fakes, and illegal fund raising.

I would be remiss if I didn’t mention the 12 Socialist Core Values (Wikipedia link). The values include prosperity, democracy, civility, harmony, freedom, equality, justice, rule of law, patriotism, dedication, integrity, and friendship. The poster below has three separate advertisements, all of which list the 12 Socialist Core Values, i.e the characters of the three posters are exactly the same.



In the above photo, again on a large 18ft wall, we can see two propaganda pieces. The left piece lists the Socialist Core Values. The right piece is hard to see clearly. I can clearly infer the characters “邻里守望” or “community watch” across the top. One has to admire fitting a message of morality and call to action for the communist party so casually into daily life.

20170412_08300520170412_083009Most Chinese propaganda isn’t explicitly violent. In fact, the most common message or repeated noun I see is “safety” or “安全” in Chinese. The key to safety, always implicitly, is communist party guidance. The ICBM and dove images above are painted on a community wall. The wall depicts China’s advancements in flight technology, starting at the kite and ending in satellites. These types of images, again, are not common. On a side note, police were called when a Chinese man saw me taking photos of this wall. Community watch indeed.


The last propaganda that I will outline today is Chairman Xi Jinping propaganda. It is constant.  The red banner above reads, “紧密团结在以习近平同志为核心的党中央周围不断开创中国特色社会主义事业新时” or “Closely unite around the Party Central Committee with Comrade Xi Jinping as the core and continue to pioneer socialism with Chinese characteristics in the new era.” The Chinese digital landscape is absolutely saturated in quotes extolling Chairman Xi. Here are three news sources that I searched today. I have highlighted the Chairman Xi Jinping news section in green. It is always the top section extolling the same qualities and prowess.

I’m constantly amazed at Chairman Xi propaganda that borders on idol worship:


今年我和习近平握过手  This year I shook hands with Xi Jinping

Before closing, I think it is important to point out that much of the propaganda above is focused on legitimizing the communist party and creating a narrative of national success and optimism. China, through the lens of its propaganda, is unstoppable. It is wholly responsible for all economic prosperity and safety. It is a path, a legacy to be fulfilled. Legacy is not built upon change. Propaganda posters with red heroes stoically facing challenges does not hearken to a government capable of addressing 21st century challenges.  As China enters a new era of change, these propaganda posters and the legacy they claim looms large in my mind.

Thanks for reading.

China, Bicycles, and Culture

I love Macro Polo. I read it regularly and urge anyone with a passing interest in China to give it a browse. I also love Macro Polo’s most recent post  about bikes in China. The love I have for the post is deep, because in the recesses of my heart exists a counterweight of hate for bicycles in Beijing. The almost romantic whirl of millions of wheel spokes captures many visitor’s hearts. The cursing of average commuters funneled into artificially narrow sidewalks induces PTSD for others.

I loved my bike in China. I loved that the back brakes didn’t work. I loved joining a throng of pedestrians and motorists with one governing rule: there are no rules. The secret to appreciating a foreign culture is to live as they do: eat their food, speak their language, and hurl concise insults at motorists you play chicken with.  My bike wasn’t just a way to drastically shorten my commute (leave it locked near your subway exit of choice), it was a quintessential manifestation of modern China, good and bad.

I have roughly 4,000 pictures of my time in Asia. One of the first folders I created is simply titled ‘bikes.’  These are my favorites.

Shared bikes in Beijing’s CBD clog sidewalks. Rush hour pedestrian traffic is greatly constrained due to this.

Users can pay more for ‘cooler’ bikes. Note the width of the tires in the second photo.


Bikes can be found everywhere due to an army of shirtless men that deposit bikes (bikes are equipped with GPS) in high traffic areas.

Bikes can be found in crosswalks. Note the couple struggling to make their way across.


Bikes can be found in rivers.


Bikes can be found in piles.


Most importantly, bikes can be found clogging sidewalks.


There are many types of bikes. Pictured above are university bikes (清华大学).


Bikes pulled by dogs.

Unwanted Bikes


Really unwanted bikes.

In France in the 1880s, the cheapest model of bicycle listed in catalogs and sales brochures cost the equivalent of six months of the average worker’s wage. And this was a relatively rudimentary bicycle, “which had wheels covered with just a strip of solid rubber and only one brake that pressed directly against the front rim.” Technological progress made it possible to reduce the price to one month’s wage by 1910. Progress continued, and by the 1960s one could buy a quality bicycle inFrance for less than a week’s average wage. One can use bikes in France to see how purchasing power rose by a factor of 40 between 1890 and 1970.  Transportation, whether by Toyota or trike, matters.


Thanks for reading.











  • 大连英特尔、无锡海力士、西安三星,典型的外资。来华目的只是为了便宜的土地、优惠的税费、以及绕过中国的关税,对当地经济有短期促进作用,但不可能依靠他们来构建起一套完整的产业链。
  • 中兴是内资,但不是有志气的内资,更像一个安逸的集成外包商。
  • 华为、腾讯、阿里、吉利、长城、京东方等等,属于“有志气的内资”,虽然各自达到的水准不同,离世界一流水平也还有差距,但他们的总体方向,是在市场中寻求突破和拓展,是他们在带领中国在各领域前行。



Asset Prices and Protests

A crucial aspect of ‘socialism with Chinese characteristics’ is the absence of risk in key assets, namely real estate. As I have previously written, Chinese policy to increase household wealth revolves around strategic asset inflation. There is an explicit idea in Chinese society that certain asset classes cannot lose value and value must always increase.

The Chinese stock market is one such asset class. This article explains how, in 2015, China set a floor for its stock market by ordering brokers to not sell below 4,500 points. The stock market was to fall no lower. It worked. Life moves on. Asset inflation continues.

 In Beijing, homes that went for an average of around 4,000 yuan (US$580) per square metre in 2003 are now above 60,000 yuan (US$8,600) a square metre, according to property price data provider creprice.cn

The key questions should then be:

1.) Can this go on forever?

2.) What happens when it stops?

Luckily there is some insight. People have been protesting drops in real estate prices for years. Here is a good article from the SCMP on the matter. Here is what a real estate protest looks like (it is really worth watching).

Something that foreign pundits regularly misunderstand about China is the amount of protests that happen. They do happen and are often allowed to happen. For example, here is a good video of recent veteran protests. However, it is worth watching how the expectation of constant growth interacts with a slowing -healthy or otherwise- Chinese economy.


Capital Scarcity

In this 7 minute YouTube video, US Trade Representative Robert Lighthizer is unable to answer Senator John Kennedy’s question. Kennedy asks why a current account deficit is bad for America if the dollars are later recycled to fund investment in America. The key question from Senator Kennedy is as follows:

If we are running a negative in our current account, our financial account has got to be positive, right? Which means that those dollars are coming back to the United States and they’re being invested.


Mr. Lighthizer should have said that Senator Kennedy’s example is assuming that foreign investment is productive and has no ill effect on the US economy.  If capital in America was scarce, foreign funds could fund the gap between domestic investment needs and low domestic savings. The problem here is that America has the deepest, most liquid, open capital markets in the world. American banks are industry leaders and capable of funding America’s investment needs.  If America’s domestic financing needs are met by American financial institutions, what are the effects of America’s consistent capital account surplus?

1.) Excess capital could find its way into asset bubbles. Asset bubbles in real estate, particularly regarding Chinese investment, have become normal. Speculative flows of money into assets can make households feel richer. For example, if you perceive the value of your house as increasing due to living in an asset bubble, you may be more willing to spend more or take on additional debt. Lastly, if American firms lessen their investment or productive investments are funded by foreign capital, America is outsourcing its capital allocation mechanisms to foreigner institutions. This could have great ramifications for a country if the foreign institution is run by communists, building military islands in the South China Sea, or responsible for the slavery of its ethnic citizens. Becoming a part of the capital allocation mechanism may also let a foreign institution interrupt democratic debate, because those who benefit or have the best relationship with said institution may be unwilling to abandon their patron.

2.) Good FDI, fairly logically, means that a foreign entity has industry knowledge or practices that make them competitive in a domestic market. A win-win is created by the foreign entity being competitive in a large market and the foreign market learning new knowledge/practice. Why would a developing country so regularly invest in a developed country considering the developing country is much less likely to have best practices?


I think there are a few reasons that Robert Lighthizer didn’t give Senator Kennedy a satisfactory answer. However, if he did give him an answer in which he stated that America’s problem isn’t its trade account but its open capital account, he would have to admit that tariffs won’t fix the problem and his administration is failing.