Friday, May 25, 2018

National security should not be (mis)used as an economic argument

"National security" has been used as a kind of get-out-of-jail card for many different reasons and by a variety of different regimes over the centuries. Most recently, it is the excuse du jour for national economic policies.
Donald Trump's trade team is threatening to use the national security argument to justify a 25% import duty on automobiles entering the country. Now, either there is a national security threat from the cars (in what way, exactly?) and they should be barred from entering the country, period, or there is not. But it seems counter-intuitive to suggest that the threat miraculously disappears if the overseas companies pay an extra 25% duty. Then again, we are long past expecting logic and consistency from the Trump administration, and Trump's aims are as simple as blatant protectionism.
But the Canadians are at it too. The Canadian government has just nixed a take-over bid for Canadian construction giant Aecon Group Inc. by Chinese government-controlled conglomerate China Communications Construction Co Ltd (CCCC). As it turns out, the Canadian company's fortunes have turned around quite significantly since they put themselves up for auction last year, and they appear quite happy to remain an jndependent Canadian company now, but CCCC won the bidding war fair and square, and Aecon's management certaibly seemed quite content to become yet another Chinese asset.
But then the Canadian government stepped in, as they have a right to do in cases where an acquisition is deemed injurious to either national security or the good of the country. The government justified the bar on the grounds of national security, which is basically the easy option because it seems to brook no argument - national security is the trump card of international negotiations (if the phrase "trump card" had not acquired an unfortunate pejorative association in this day and age), and typically it is taken as axiomatic in some way, with no need for further explanation.
Except, wait ... Aecon is a construction and engineering company. As their own CEO points out: "We are a construction company. We install things, we cut and weld things, we have no intellectual property, we have no secret information." Over the last few decades, Canada has already sold nuclear and hydroelectric power stations and high-speed transportation to China. There are really no state secrets to be lost here, and it is unlikely that China would be using CCCC to spy on Canada's roads, bridges and buildings (they could just use Google Street View...)
What Canada is really worried about, and rightly so, is increasing Chinese trade dominance and competitiveness, which could well come under the heading of a threat to the national net benefit. Certainly, Aecon's domestic competitors were extremely worried about how CCCC might affect the local market. As much as anything, we just plain distrust China, because it is non-democratic and non-transparent, and because it has a proven record of sharp and overly-aggressive business practices, and its companies oftenbenefit from unseen subsidies. But don't raise the hoary spectre of national security when it does not apply: that merely cheapens the whole argument.

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