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www.dailyreckoning.com: Port Deal Causes Protectionism to Rear Its Ugly Head

BALTIMORE, MD - Republicans and Democrats are up in arms, declaring a threat to homeland security after Dubai Ports World acquired London-based Peninsular & Oriental Navigation Company, which manages five U.S. ports. However, one expert asserts that not only are these fears unsubstantiated, but that this wave of protectionism is actually counterproductive for the U.S. economy.

“America’s trade deficit hit an all-time high for 2005, and the country is not in the position to start dictating where foreigners can invest,” says financial expert and Daily Reckoning columnist Chris Mayer. “The only way the United States is able to sustain such a deficit is by getting money from abroad, by attracting investment dollars.”

“It is short-sighted protectionist measures – like the ones being pursued by members of Congress – that helped precipitate the Great Depression,” says Mayer. “The more difficult politicians make it to do business in the United States, the more they risk triggering global depression and economic stagnation.”

Mayer warns that the protectionist measures mean that dollar assets are not going to be as attractive to investors abroad – and that means bad things for the U.S. dollar and the health of the economy.

“For those who say they don’t want a foreign government running our ports; well, here’s an interesting fact,” continued Mayer. “China already runs a terminal at the Port of Los Angeles. Singapore runs terminals in Oakland. The fact is, around the world this is commonplace. If the U.S. government is going to exclude foreign companies (even government-owned ones) from running its ports, it will only slip back further in the global competitive race, isolating it from the biggest and most efficient port operators in the world.”

Among emerging markets, the United Arab Emirates – of which Dubai is a part – was the second largest purchaser of U.S. companies last year, with over $1 billion invested. That’s a small fraction of the Middle East’s buying power. Currently, the Middle East holds over $120 billion in U.S. securities, excluding trillions of dollars held by foreigners in other parts of the world.

“America can either encourage the open markets it so often trumpets,” says Mayer, “or it can retreat into the ugly cocoon of protectionism – with racist overtones to boot.”