What Do Investors Know?

Here’s a letter that I sent yesterday to the Washington Post in response to this report on Congress’s refusal to renew the President’s fast-track authority to negotiate trade agreements.

Dear Editor:

It is
unfortunate that Congress refuses to renew the President’s fast-track
trade authority ("End Nears for Era of Presidential Trade Authority,"
June 30).   And it is insulting for protectionists, such as Kevin
Kearns, to justify this refusal with the argument that freer trade has
encouraged "footloose multinational companies" to flee the U.S. for
"penny-wage, regulation-free foreign production sites like Mexico and China."

The
facts are difficult to square with this claim.  In 2006, per capita
foreign direct investment in Mexico was $174; in the U.S. it was $612 – three and a half times as much as in Mexico.  2006 figures for China are unavailable, but in 2005 per capita FDI in that country was just shy of $60 – less than one-tenth of 2006 per capita FDI for the U.S.

Sincerely,
Donald J. Boudreaux
George Mason University

Note also this fact reported by UNCTAD (which I did not have room to include in my letter):

Two-thirds of FDI flows in 2006, at US$ 800 billion, were to developed
countries (up from three-fifths in 2005). This represents an
exceptional 48 per cent estimated increase over the US$ 542 billion
flows into developed countries in 2005.

If high-wage, developed countries are less attractive places to earn profits than are low-wage, developing countries, investors worldwide have yet to learn this alleged fact.

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