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| Home Front Economy |
| The Coming Euroinvasion |
| 2008-06-13 |
| I am not worried about rich Arabs; it’s the French who worry me.” This was the response from a businessman in Clovis, California, reacting to my comment that the U.S. government was concerned about the influence of foreign-owned sovereign wealth funds. “Why are you worried about the French?” I asked. “They just bought the largest company here,” he replied. “Life will now change for all of us—that company has been an important part of this community for years.” He was referring to Pelco, a Clovis-based manufacturer of video security systems that was recently acquired by Schneider Electric, a French company. There is nothing special about Pelco’s sale; foreign companies buy American ones all the time and vice versa. This transaction was far smaller than the United Arab Emirates’ $7.5 billion investment in Citigroup or China’s $3 billion investment in the Blackstone Group, a major financial company. Except that this transaction is part of a trend that, though still largely unnoticed, will soon rear its head: The United States is poised to receive a massive—perhaps unprecedented—inflow of large- and medium-size European investors. Everything from corporate behemoths to family-owned companies are about to come to America on a corporate buying spree. Call it the Euroinvasion. Not only will many U.S. companies now have European owners, but the American marketplace will witness an infusion of new foreign competitors that will manufacture their products in the United States. They will use their new American base both to export to the world—including back to their own European market—and to serve the U.S. market from inside its borders. Such a trans-Atlantic shift will have an enormous impact on Europe’s levels of employment and exports. Inevitably, the move will also ignite a political firestorm on both sides of the Atlantic. European politicians will denounce the companies for “exporting jobs” to America, while U.S. politicians, already rattled by the threat of foreign competition, will be infuriated by what they will brand as “the foreign takeover of America.” CNN anchor Lou Dobbs will be foaming at the mouth. Why is this happening now? The plummeting U.S. dollar has made the move across the Atlantic affordable for many European companies. And this may be a once-in-a-lifetime chance to relocate: American companies have rarely been so cheap. Five years ago, a German or Spanish company that coveted a U.S. competitor worth $500 million needed roughly 430 million euros to purchase it. Today, it would take just 316 million euros to buy a company worth half a billion dollars. European companies are not just being pulled to America by a cheaper dollar. They are also being pushed away from Europe by a business environment that is not as attractive as that in the United States. For many companies, moving across the Atlantic is the fastest and cheapest way to cut costs and become more competitive. The average hourly manufacturing wage in Europe is 16 percent higher than in the United States. Social insurance and payroll taxes are far steeper in Europe. As are energy costs: the average price of a kilowatt-hour for industrial usage in Europe is roughly 60 percent more than in the United States. Transportation costs are higher, too. And the cost advantages of operating in the United States don’t stop there. Land is still far cheaper in the United States. An acre of rural land in the United States will cost you an average of $1,900. The same plot of land will cost you $5,700 in Germany, $6,650 in Spain, and $14,600 in Denmark. Every year, competition in the global economy becomes fiercer. Although some European companies may set up shop in Asia or Eastern Europe—which can be even cheaper than the United States—most still view the United States as the corporate Mecca. As the CEO of an Italian manufacturing company recently told me, “I cannot afford not to move to the U.S. if I want my family’s company to survive. It will not only be cheaper, but it will also place me and my engineers in the middle of a large cluster of leading-edge technology companies and in the largest market in the world. We will keep some design operations in Italy, but everything else goes to Massachusetts.” Some manifestations of the Euroinvasion are already visible. Germany’s ThyssenKrupp is investing $3.7 billion in a steel plant in Alabama. France’s Alstom, a manufacturer of high-speed trains and turbines, is building a major factory in Tennessee. Other European companies like Italy’s Fiat have decided to reenter the U.S. market after a 13-year hiatus, and BMW is substantially expanding its manufacturing presence. Recently, the market value of Spain’s Banco Santander surpassed the value of Citigroup, the standard bearer of the U.S. banking industry. It will be only natural for European banks like Santander to expand their presence in the United States by taking advantage of the fact that many U.S. financial institutions have become far cheaper as a result of the subprime crisis. But the Euroinvasion will be much more than a few headline-grabbing mega-deals. It will consist of thousands of smaller transactions in which midsize European companies swoop in to buy American companies for what will seem like a bargain. It is going to be impossible for American politicians to stop the Euroinvasion. European politicians will be equally helpless in preventing their companies from moving to the United States. While stopping a few large investments by foreign government-owned funds in American ports, defense industries, and oil companies may be possible, preventing thousands of private companies from investing in the United States is not. Although difficult economic times always create political opportunities for demagogues and populists, America is far from ready to repeal capitalism. And stopping the Euroinvasion would require nothing short of that. |
| Posted by:tu3031 |
| #9 FYI, CHINESE MIL FORUM Poster > claims that many citizens of EUROPE, which he refers to as the "EUROZONE" in anti-OWG OWG-speak, are moving from said Eurozone and settling in THAILAND??? |
| Posted by: JosephMendiola 2008-06-13 21:53 |
| #8 NO surprise here . as argued times before, WOT > AMERICA TAKES OVER THE WORLD versus WORLD TAKES OVER AMERICA. among other premises. Espec now wid IRAN + RADICAL ISLAM "GOING FOR BROKE" IN CENTRAL ASIA, etc. VV PAN-ISLAMIST NUCLEARIZATION + STRATEGIC WEAPONIZATION, FOR POST-2010 OR 2012 RESURGENT JIHAD-TERR [Nuklar]. VLAD PUTIN make like the idea of A "MULTIPOLAR" WORLD, but OSAMA + RADICAL ISLAMISM THINK OTHERWISE TO SAVE THEIR JIHAD. JIHAD > OSAMA + ISLAMISTS > BIPOLAR = US-ALLIES versus NUCLEAR ISLAMIST CENTRAL ASIA/ISLAMIST ASIA??? |
| Posted by: JosephMendiola 2008-06-13 19:58 |
| #7 "The side benefit if you are a Euro businessman is you can eventually move your headquarters state-side if Eurabia gets too bad" Also true. The US is the ultimate "safe haven" for capital flight - if push comes to shove in any sense whatever, eventually, this will be the last place standing if any is. Its cheap to do so now. Get in while the gettings good. |
| Posted by: buwaya 2008-06-13 18:55 |
| #6 Foreign investment in the US is booming. So are US exports. People point to high oil prices, real estate problems, etc. in order to forecast a recession; but the recession seems rather late in coming, and may not come at all. I think they are missing these other factors moving the other direction. |
| Posted by: buwaya 2008-06-13 18:51 |
| #5 Procopius, I was just going to mention the last go-round with Japan. For awhile there people were afraid that Japan was going to own the whole country or so it seemed. Naturally, it never happened. The Japanese econom tanked (as Europe's is doing) and ours bounced back (as we will again). When that happens a lot of the investments made by the Euroweanies will be bought back by American investors. The real threat we have to watch out for is people like Soros who's only desire seems to be driving the American dollar down and tanking the US economy - with no apparent thought whatsoever in the fact that the world's economy follows whatever the US economy does. |
| Posted by: FOTSGreg 2008-06-13 18:23 |
| #4 The side benefit if you are a Euro businessman is you can eventually move your headquarters state-side if Eurabia gets too bad. |
| Posted by: rjschwarz 2008-06-13 18:04 |
| #3 agree Procopius2k. It is a multi-edge sword. The real estate is cheap now and paying the labor costs and travel are great while the dollar is low. But to everything a season. When the dollar goes up - so do the labor costs, shipping costs, material costs and salaries. The dollar will always go up and down and so do these crisis. One man's ceiling.... |
| Posted by: Sninert Black9312 2008-06-13 16:26 |
| #2 Didn't we have all this 'foreigners' taking over in the last dollar dump go around but with the Japanese? Crisis, crisis [time to sell more tv time and page columns by generating the next 'crisis'(tm) and throw a little xenophobia in for the gun hugging, bible totting, rednecks as well]. Only two nations capitalized their own development, Great Britain and the Soviet Union. Everyone else leveraged foreign investment. It is not only the low dollar that makes the buying enticing, but the low productivity of investing the money back home [Europe] or the long term security of existing property and corporate laws [as lacking in China]. I say welcome. And get to |
| Posted by: Procopius2k 2008-06-13 15:52 |
| #1 It will be interesting for the European companies to be subject to American financial transparency laws. I imagine there will be lots of bribery cases brought in the next decade. |
| Posted by: trailing wife 2008-06-13 14:51 |