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Unfortunately for most of the people living between the Atlantic Ocean and the Gobi Desert (including us), the key decisions determining the future direction of the global economy (of which they are part), are made in Washington and Beijing. Indeed, it seems that several critical decisions have been taken or announced in the last two weeks, whilst Israelis were pretending that the pontificating politicians competing for their votes have primary influence over the national economy.
We'll start in the US, where the struggle between Congress and the President over whether to let Dubai buy control of several American ports ended in a resounding defeat for the President. This event has considerable implications in several directions.
Domestically, it confirms that Bush is a lame duck, that he is out of touch even with his own party and that he is unlikely to achieve anything important from his second-term agenda. Three years of governmental paralysis in the US is not a pleasant prospect, even for many opponents of the Bush Administration.
But what is worse than this is the flip side of the coin: The winners of this clash between Congress and the White House were the emerging Democratic-Republican coalition that favors bashing foreigners and withdrawing into economic and diplomatic isolationism. That the supposed Democrat front-runner for the 2008 election, Hillary Clinton, is one of the leaders of this unholy alliance, is perhaps the best indication of where the political winds in the US are blowing.
The demise of the Dubai purchase, on the spurious and unproven grounds of national security, is widely viewed as confirming the reemergence of protectionism as a major political force. The previous indication of this was the uproar last year over the attempt by the China National Offshore Oil Corporation (CNOOC) to buy control of a medium-sized American oil company, Unocal, most of whose assets are actually outside of the US. Here the argument was that 'strategic assets' must not be allowed to "fall into the hands" of potentially inimical and dangerous countries, such as China. In the more recent case, the fact that Dubai is America's firmest ally in the Arab world and provides a key base for US naval and air units counted for little, compared with the populist desire to treat all Arab countries as enemies and all Arabs as potential terrorists.
There are, in fact, two separate but connected issues in this debate. One is whether allowing foreigners to buy control of US companies, or US infrastructure, is dangerous either from an economic or a security standpoint. The answer to both is "no."
Sales between a willing buyer and a willing seller carry no economic "danger," especially when the asset purchased is physical - an oil well, or a port. You can't steal it and, if it is in the US, the strong likelihood is that it will employ Americans and thereby contribute to the US economy. Furthermore, as owner, you should want to maximize its value because, if you don't, someone will buy it from you and do a better job.
From a security standpoint, it's up to the various national authorities to make sure criminals and terrorists don't infiltrate the US - and it's likely that investors will cooperate with them in this effort, since it's their assets which are most at risk.
The second point is this: Let's suppose, for argument's sake, that there is some degree of economic or security threat in this kind of foreign investment - even then, there is a wider picture to consider, when deciding whether to allow it. Clearly, if the US prevents other countries, both big and small, both friendly and less so, from investing in the US, it can expect those or third countries to treat it the same way. This is bad, not only because America has traditionally championed free trade and open markets and is open to the charge of hypocrisy if it protects its own companies, but because the US economy is now dependent on the rest of the world - especially the Chinese and the Arabs - to an unprecedented degree.
However, these arguments are largely moot in light of the fact that protectionism and economic nationalism are on the march in the US (not to mention in Western Europe). This is the worst possible economic news for the global economy - including the Israeli economy, whose long-term development is based on free trade. If the current trend holds sway in the US through the mid-term elections this year and into the presidential campaign, the prospect will no longer be for a global slowdown, but for something much worse.
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