This issue will throw market-oriented economists into conniption fits. On one hand, it sounds like free trade. On the other hand, it sounds like nationalized industry. If we don’t want the U.S. government owning a chunk of the S&P 500, why should we embrace Russian government ownership? Do you feel better at a 19 percent share in a local public utility? The $3 trillion and maybe someday $12 trillion in these funds will force us to define exactly where national security considerations start and end, never a fun job. On the bright side:
1. Having the other country’s stock shares to nationalize gives the U.S. foreign policy leverage (wait: is that good?)
2. A falling dollar will to some extent limit this issue, though it won’t reverse the current accumulation of liquid reserves.
3. Foreigners and foreign governments rarely buy Google at the ground floor level and I suspect they earn sub-normal returns, relative to the pool of American investors as a whole. They’ll end up financing yet some more of our consumption, albeit through a new mechanism. What a racket!
4. As Dani Rodrik indicates, the existence of the California pension system hasn’t exactly sent U.S. companies into chaos.
5. There is a genuine chance that China and other countries, as they want to invest more themselves, will feel additional pressure to open up to foreign investment. I’ll recognize that free capital movements are not always a boon for development, but sooner or later China has to take this plunge, if only to move toward greater freedom and transparency.