One problem of a large current account deficit
As we have said previously, the US is running a huge current account deficit (over $800 billion), and thus big surpluses are piling up on the other side of that deficit. It is both critical and commonplace for these surpluses to be recycled into spending or investment in the economy running the deficit. However, serious potential complications present themselves in this recycling, since the largest surpluses are in the Middle East and China.
Today’s example of a potential problem is the $2.2 billion joint acquisition of 3Com, the networking company, by Huawei Technologies (20%), a Chinese telecom equipment maker, and Bain Capital (80%), the private equity firm once run by Mitt Romney. FT:
The Pentagon believes Chinese People’s Liberation Army hackers were responsible for a massive cyberattack on it this year. Bryan Whitman, a Pentagon spokesman, said he was “not aware of any concern” over Huawei taking a stake in 3Com. But Sami Saydjari, a former Pentagon cybersecurity expert and currently chief executive of Cyber Defense Agency, said Huawei’s ownership of hardware and important network components would be “really worrisome”.
“Any Chinese-related deal that touches on government IT systems, even in a minority capacity, is going to be something that the Committee on Foreign Investment [Cfius] looks at closely,” said Christopher Simkins, an attorney at Covington & Burling and former US justice department official. Cfius examines transactions that involve a change in control in a US asset. But the panel could require the companies to agree to a mitigation agreement that would limit Huawei’s access to certain technologies and bar its involvement in any contracts with the US government.
It is said that 3Com is badly in need of a deal. WSJ: Frank Dzubeck, a networking consultant with Communications Network Architects Inc., said 3Com needed a dramatic step. “3Com has been on one of the industry’s longest death spirals”. So 3Com is in need of a deal and the US needs to permit the recycling of its deficits into investments by surplus nations and companies. However, that effort, because of the huge dollars involved, will increasingly involve companies and assets that the US government or its citizens consider to be of strategic importance.
In our view, the time has arrived for the US to get serious about reducing its current account deficit, but it must do so in a way that avoids the perils of outright protectionism. A dramatic shift in energy policy is an obvious and long overdue place to start.