Foreign Acquisition in the U.S.: A Neomercantilist Challenge

by A. Cao



Although foreign direct investment is not a new phenomenon in the United States, its sudden sustained growth in the 1970s has caused some concern among local communities, businessmen, legislators, administrators, and scholars. Canada, the Netherlands, and the United Kingdom account for the major portion of total foreign direct investment in the U.S.; Japan had the largest growth rate. Manufacturing represented the most important industrial activity by foreign direct investors in the U.S., especially in chemicals, followed by petroleum; trade and insurance were the fastest growing sectors, followed by finance. Cash acquisition of existing U.S. firms by foreign direct investors appeared to be the most popular form of entry. The major reasons for the sudden and sustained influx of foreign direct investment in the U.S. are its "open door" attitude, the "'national treatment" that U.S. law affords foreign investors, the trillion dollar U.S. market, the rise in U.S. protectionism, the availability and low cost of production in the U.S.. U.S. political stability, the decline of U.S. stock prices, the technological and financial abilities of foreign firms, and depreciation of the U.S. dollar. The future outlook for foreign direct investment in the U.S. appears bright despite some stringent legal requirements in the financial sector. Note, however, that such new laws are only intended to establish equal treatment between foreign and domestic firms. The U.S. open attitude tends to remain unchanged due to the realization that, contrary to the initial belief and fear, foreign direct investment in the U.S. has in general proven orderly and beneficial to the U.S. economy. Experience has shown that there is no real or potential threat of control by foreigners in any industrial sector of the U.S. economy. For these reasons, it is expected that, while manufacturing will remain the leading industrial activity of foreign investors in the U.S., the service sector will grow in…

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