The Custom-House

"Financial Turmoil and U.S. Power"

The Council of Foreign Relations has begun a new forum on Financial Turmoil and U.S. Power.   Sebastian Mallaby leads off with a short introductory essay.  Invited contributors will be looking at whether the U.S. "capacity to sustain an international role may have been compromised" (or was German Finance Minister Peer Steinbrueck right that “the United States will lose its superpower status in the world financial system”).

Mallaby starts the discussion with three specific questions: (1) Will U.S. growth slow relative to that of its rivals?; (2) Will it become harder to sustain the pre-eminence of the dollar?; (3) Will American foreign policy be compromised by mounting indebtedness?

The invited contributors are :

• Adam Posen
• Arvind Subramanian
• Brad W. Setser
• Brink Lindsey
• Charles Calomiris
• Daniel Drezner
• Desmond Lachman
• Heidi Crebo-Rediker
• James K. Galbraith
• Jeffrey Frankel
• Joseph Nye
• Megan McArdle
• Michael Mandelbaum
• Nicholas Eberstadt
• Richard Medley
• Robert Litan
• Roger Kubarych

Limited recourse for U.S. Yukos shareholders

In 2003 and 2004 the Russian government deliberately and systematically trashed the Yukos oil company so that the government-owned company Rosneft could acquire its assets at a fraction of their real value.  U.S. citizens may have lost $6 to $7 billion in investments in Yukos because of this.  How did the U.S. government respond when its citizens' assets were expropriated? 

Fecklessly.  Anders Aslund of the Peterson Institute explains what happened (US-Russia Economic Relationship: Implications of the Yukos Affair):

Clinton and Obama on the Investor Protection Provisions in Trade Agreements

The Pennsylvannia Fair Trade Coalition asked Clinton and Obama about their opinions on investor protection provisions in trade agreements.  Simon Lester reports the responses: The Democratic Candidates on Investment Rules (International Economic Law and Policy Blog, April 18).

What Do Americans Think About FDI?

Kenneth Scheve and Mathew Slaughter looked at American ideas about the economic impacts of foreign direct investment (FDI) in their paper on Globalization and the Perceptions of American Workers (Peterson Institute, 2001). 

All the responses they report came from polls in the late 1980s and the 1990s.  Although the results are from different polls conducted over more than 10 years, they treat the results as if they came from a body of persons at a given point in time.

Setser's Testimony on Sovereign Wealth Funds and National Security

Brad Setser testified at the recent hearings on "Implications of Sovereign Wealth Fund Investments for National Security" held by the U.S. China Economic and Security Review Commission.  Here is his testimony: The Implications of Sovereign Wealth Fund Investments for National Security.

I enjoyed his discussion of interagency competition among the Chinese agencies looking for a role in investing abroad:

The Financial Sanctions on Iran

Farnaz Fassihi and Chip Cummins report that the U.S. financial sanctions on Iran are working, but are also having some undesirable efects as well: Iranians Scheme to Elude Sanctions (Wall Street Journal, Feb 13):

More Advice on What to Put In the Upcoming FDI Security Review Regs

Democratic Senators Evan Bayh of Indiana and James Webb of Virginia made it clear they expect the Treasury to address the potential security issues raised by sovereign wealth funds as it revamps the regulations governing security reviews of foreign investments.

Both spoke at a hearing held by the U.S.-China Economic and Security Review Commission today (Hearing on the Implications of Sovereign Wealth Fund Investments for National Security).  Last year Congress revised the legislation that governs those security reviews.  The Treasury is revising its regulations to bring them in line with the new statute (How Should We Revise the Regs Governing FDI Security Reviews?).

Bayh laid out his concerns about foreign investments.  His expectations for the regulations:

Two Reports on Sovereign Wealth Funds

The Congressional Research Service released two reports on sovereign wealth funds this past month.  Martin Weiss provided an overview of the issues they raise in Sovereign Wealth Funds: Background and Policy Issues for Congress (January 28).  Michael Martin focused on the China Investment Corporation in China’s Sovereign Wealth Fund (January 22, 2008).