***aff

2ac international fiat bad

International fiat is a voting issue Our interpretation is that the neg can only fiat U.S. action this is best 1. Rational decision- a!ing no rational actor has the po"er to "eigh the choice presented by the #$ this a!es it unpredictable and erases all debate%s portable educational benefits 2. &i its there are 1'( countries in the "orld plus ultilateral organi)ations* any of "hich they could use to build si ilar infrastructure infinitely regressive* e+plodes the research burden* destroys co petitive e,uity this !ills predictability because they can literally choose any country (. -heir #$ is uni,uely abusive they s!irt our solvency attac!s by artificially anipulating the literature so e of their ev says #hinese businesses should build U.S. infrastructure .. Reciprocity the aff ust defend U.S. federal action giving the neg infinite international actors is unfair reciprocity !ey to debate !eeps the round balanced and it/s the only ob0ective "ay to decide fairness 1. 2ills topic specific education only tests the acting country "hich eans "e lose education about all other parts of our aff forces us to debate #hinese policy "hich there/s no resolutional education or basis for 3. 4round they fiat an international actor does the counterplan "hich destroys predictable say no ground 5. 6efer aff the neg has states and any nu ber of other reliable generics and neg "in percentages prove side biases theory/s !ey to chec! this

do

inance turn

#hinese intentions are not to"ards cooperation #aribbean encroach ent proves they/re only interested in o"ning assets for political and diplo atic leverage the counterplan "ill destroy U.S. leadership and co petitiveness 78- /12 (Randal C. Archibold, staff writer, China Buys Inroads in the Caribbean, Catching
U.S. Notice , !he New "or# !i$es, htt%&''www.nyti$es.co$'()*(')+'),'world'a$ericas'usalert-as-chinas-cash-buys-inroads-in-caribbean.ht$l.%agewanted/all0 NASSAU, the Baha$as 1 9 brand ne" :(1 illion stadiu opened here in the ;aha as a few wee#s ago, a gift fro the #hinese govern ent. !he tiny island nation of 6o inica has received a gra ar school* a renovated hospital and a sports stadiu * also courtesy of the #hinese. 9ntigua and ;arbuda got a po"er plant and a cric!et stadiu * and a ne" school is on its "ay. !he %ri$e $inister of -rinidad and -obago can than! #hinese contractors for the crafts anship in her official residence. #hina/s econo ic ight has rolled up to 9 erica/s doorstep in the #aribbean* "ith a flurry of loans fro state ban!s* invest ents by co panies and outright gifts fro the govern ent in the for of ne" stadiu s* roads* official buildings* ports and resorts in a region "here the United States has long been a pri e benefactor. -he #hinese have fle+ed their econo ic pro"ess in nearly every corner of the "orld. ;ut planting a flag so close to the United States has generated intense vetting < and so e raised eyebro"s < a ong diplo ats* econo ists and investors. 2hen you34e got a new %layer in the he$is%here all of a sudden, it3s ob4iously so$ething tal#ed about at the highest le4el of go4ern$ents, said 5e4in 6. 7allagher, a Boston Uni4ersity %rofessor who is an author of a recent re%ort on Chinese financing, !he New Ban#s in !own. 8ost analysts do not see a security threat, noting that the Chinese are not building bases or forging any $ilitary ties that could in4o#e fears of another Cuban $issile crisis. But they do see an e erging superpo"er securing econo ic inroads and political support fro a bloc of developing countries "ith ane ic budgets that once counted al ost e+clusively on the United States* #anada and =urope. #hina announced late last year that it "ould lend :3.( billion to #aribbean govern ents , adding considerably to the hundreds of $illions of dollars in loans, grants and other for$s of econo$ic assistance it has already channeled there in the %ast decade. Unli#e in Africa, South A$erica and other %arts of the world where China3s forays are largely dri4en by a search for co$$odities, its %resence in the Caribbean deri4es $ainly fro$ long-ter$ econo$ic 4entures, li#e touris$ and loans, and %otential new allies that are ine9%ensi4e to win o4er, analysts say. A$erican di%lo$atic cables released through 2i#i:ea#s and %ublished in the British news%a%er !he 7uardian ;uoted diplo ats as being increasingly "orried about the #hinese presence here >less than 1'? iles fro the United States@ and s%eculating on its %ur%ose. <ne theory, according to a ())= cable, suggested that #hina "as lining up allies as >a strategic ove@ for the eventual end of the #astro era in #uba* "ith "hich it has strong relations. But the %ublic line today is to be untroubled. I a$ not %articularly worried, but it is so ething the U.S. should continue to onitor , said >ennis C. Shea,

the chair$an of the U.S.-China ?cono$ic and Security Re4iew Co$$ission, a bi%artisan Congressional %anel. But, he added, 2ith China you ha4e to be wary of %ossible %olicy goals behind the effort. !his archi%elago, less than a one-hour flight fro$ @lorida, has gotten %articular attention fro$ the Chinese. Aside fro$ the new stadiu$, with its China Aid %la;ue affi9ed %ro$inently at the entrance, Chinese wor#ers here in the ;aha as are busy hel%ing build the A=.B billion Baha 8ar, one of the region3s largest $egaresorts. Beyond that, a #hinese state ban! agreed in recent "ee!s to put up :.1 illion for a ne" port and bridge* and a ne"* large #hinese = bassy is being built do"nto"n . !he new stadiu$ here, Baha$ian officials said, was in %art a re"ard for brea!ing ties "ith -ai"an in 1''5 and establishing and !eeping relations "ith #hina. It is one of se4eral s%orting arenas that #hina has sprin!led in #aribbean and #entral 9 erican nations as gratitude for their recognition of one China 1 in other words, for their refusal to recogni)e -ai"an, which Chinese officials consider %art of their country. -hey offered a substantial gift and we o%ted for a national stadiu$, said Charles 8aynard, the ;aha ian s%orts $inister, adding that his govern ent could never have afforded to build it on its o"n. In this enduring tug of war with !aiwan, others ha4e switched, too, with a little financial encourage$ent. 4renada ended relations "ith -ai"an in 2??. , and it is no" in tal!s "ith #hina about getting a new national trac# and field stadiu$. !he %arting has not been entirely a$icableC -ai"an and 4renada are no" loc!ed in a financial dispute over loans that 4renada received to finance the construction of its airport. >eter$ined not to be sidelined, !aiwan is see#ing to solidify its e9isting relationshi%s with countries li#e BeliDe, St. 5itts and Ne4is, and St. :ucia 1 which in ())E bro#e relations with China in fa4or of !aiwan 1 with a be4y of %roFects, $any of the$ agricultural, including an agree$ent signed with BeliDe in recent wee#s to de4elo% the fish far$ing industry there. Still, !aiwanese di%lo$ats in the region conceded that they could ne4er #ee% u% with China3s largess but continued to $a#e strategic in4est$ents in the Caribbean. !here are so$e co$$odities in the region that China wants. In August, a Chinese co$%any, Co$%lant, bought the last three go4ern$ent sugar estates in Ga$aica and leased cane fields, for a total in4est$ent of A*HH $illion. :ast year, Ga$aica for the first ti$e shi%%ed its fa$ed Blue 8ountain Coffee to China. -he Aa aican govern ent has also received several hundred illion dollars in loans fro #hina* including :.?? illion announced in 2?1? over five years to rebuild roads and other infrastructure. >In order to be prosperous you need to build roads first, said Ada$ 2u, an e9ecuti4e with China Business Networ#, a consulting grou% for Chinese businesses that has been $a#ing the case for China in se4eral Caribbean countries. Se4eral analysts in the Caribbean say they belie4e that #hina eventually "ill e erge as a political force in the region* "ith so any countries indebted to it* at a ti e "hen the United States is perceived as preoccupied "ith the Biddle =ast and paying little attention to the region. -hey are buying loyalty and ta!ing up the vacuu left by the United States* #anada and other countries* particularly in infrastructure i prove ents*@ said Sir Ronald Sanders, a for$er di%lo$at fro$ Antigua and Barbuda. If China continues to in4est the way it is doing in the Caribbean, the U.S. is al ost a!ing itself irrelevant to the region , he added. "ou don3t lea4e your flan# e9%osed. In so$e %laces, Chinese contractors or wor#ers ha4e stayed on, beginning to build co$$unities and businesses. So $any ha4e o%ened in Roseau, >o$inica, that local $erchants ha4e co$%lained about being s;ueeDed out. !rinidad and !obago has had wa4es of Chinese

i$$igration o4er the %ast century, but locals are now seeing $ore Chinese restaurants and sho%s, as well as other signs of a new i$$igrant generation. I a$ second-generation !rinidadian-Chinese, and li#e $ost of us of this era, we ha4e integrated 4ery well in society, ha4ing friends, girlfriends, s%ouses and #ids with %eo%le of other ethnicities, said Robert Gohnson-Attin, =H, a $echanical engineer now with his own successful business. It3ll only be a $atter of ti$e before it ha%%ens with the Chinese co$ing in now. Iere in the Baha$as, !an Gian, the econo$ic counselor at the Chinese ?$bassy, said he that belie4ed it/s only the start@ of the #hinese presence across the #aribbean* casting it as one de4elo%ing country using its growing econo$ic %ower to hel% other de4elo%ing ones. !he Baha$ian go4ern$ent, he said, cannot afford to build huge %roFects by itself. 2hile the Chinese built the stadiu$, the Baha$as is res%onsible for utility hoo#u%s and the roads and landsca%ing outside it. !he A=B $illion gift is costing us AB) $illion, said 8r. 8aynard, the s%orts $inister. But at the end of the day it will %ay for itself by %utting the Baha$as in %osition to host $aFor s%orting e4ents and rea% the touris$ re4enue that co$es with that. @or Baha 8ar, the Chinese ?9%ort-I$%ort Ban# is financing A(.H billion, nearly three-;uarters of the cost, and China3s state construction co$%any is a %artner. !he Baha$as agreed to allow u% to ,,))) foreign wor#ers, $ost of the$ Chinese, to wor# on the %roFect in stages, but it also re;uired e$%loy$ent for +,))) Baha$ians, da$%ening concerns that Chinese wor#ers were ta#ing Fobs. A$erican co$%anies will also ta#e %art in building and running it. 8r. Gian %layed down any econo$ic co$%etition with the United States, whose tourists, he asserted, stood to benefit fro$ China3s %resence in the Caribbean. !he Chinese wor#ers here li4e in barrac#s behind the %roFect fences, largely shielded fro$ %ublic 4iew. 2e hardly #now they are here, said Ga$es >uffy, watching a trac# %ractice ne9t to the stadiu$ one recent afternoon, adding with a chuc#le& ?9ce%t for the big things they build.

chinese infrastructure bad

7o e+pertise spillover #hinese e+pertise is "orthless ;rannon and -ho an .C1D'*( J director of ?cono$ic 6olicy as well as the >irector of
Congressional Relations for the A$erican Action @oru$, for$er chief econo$ist for the Iouse ?nergy and Co$$erce Co$$ittee, for$er Senior 6olicy Ad4iser and Chief ?cono$ist for the Re%ublican 6olicy Co$$ittee, for$er Senior Ad4iser for !a9 6olicy at the U.S. !reasury, 6rinci%al ?cono$ic Ad4iser for Senator <rrin Iatch on the Senate @inance Co$$ittee, for$er Chief ?cono$ist for the Goint ?cono$ic Co$$ittee, and for$er senior econo$ist for the <ffice of 8anage$ent and Budget, AN>KK coordinator of econo$ic %olicy at the A$erican Action @oru$, (I#e and 8att, About !hose Better Roads in China , !he A$erican, the A$erican ?nter%rise Institute, A%ril *,, ()*(, htt%&''www.a$erican.co$'archi4e'()*('a%ril'aboutthose-better-roads-in-china0''G5ahn In an address to a Foint session of Congress, 6resident <ba$a la$ented that building a worldclass trans%ortation syste$ is %art of what $ade us an econo$ic su%er%ower1and now we3re going to sit bac# and watch China build newer air%orts and faster railroads. !he a%%eal to su%erior Chinese infrastructure being a $anifestation of A$erica3s ills1and Chinese econo$ic $ight1is a fa$iliar tro%e for the %resident. Ie $ade a si$ilar argu$ent in defense of the infrastructure in4est$ents contained in the original ())L sti$ulus bill, as well as during the ()), %residential ca$%aign. !he A$erican Gobs Act of ()** includes A*+) billion of infrastructure in4est$ents, a$ong the$ %ro4isions to $oderniDe schools, i$%ro4e roads, and establish an infrastructure ban#. !his a%%eal that we #ee% u% with the Chinese begets two ;uestions& Is our infrastructure really lagging that of #hina/sE 9nd if so* should that be a otivating factor in ho"<and ho" uch<"e invest in infrastructureE Fhile the United States could Gand shouldH be doing ore to develop infrastructure* !eeping up "ith #hina is not the reason for doing soI and #hina is actually far behind 9 erica/s level of infrastructure . !he Maunted Chinese Infrastructure :ags the U.S. Fhile the United States has ore than 11*??? airports* #hina has a ere 1?2 . -he U.S. rail"ay syste is three ti es the length of #hina/s. Fhile the president apparently ta!es it as a given that #hinese infrastructure is better than 9 erica/s* the reality is other"iseJ U.S. roads* bridges* airports* and the li!e are leaps and bounds above "hat the #hinese have. 9 closer inspection reveals that #hina suffers fro a serious lac! of infrastructure that threatens to throttle their long-ter gro"th prospects. Although the %o%ulation of China is four ti$es that of the United States, it will be decades before China can construct an infrastructure co$%arable in sco%e to our own. @or instance, while the United States has $ore than *B,))) air%orts, China has a $ere B)(. !he U.S. railway syste$ is three ti$es the length of China3s, des%ite the fact that rail re$ains the do$inant way for its citiDenry to tra4el long distances. !he length of U.S. oil and gas %i%elines are an order of $agnitude larger than what is found in China, which $eans that $uch $ore of their li;uid fuels ha4e to be trans%orted o4er land, ta9ing their relati4e %aucity of roads. <ther i$%ortant indicators, such as electricity %roduction and the a$ount of %a4ed roads, re4eal si$ilar dis%arities, as the table below suggests.

&ac! of invest ent e+pertise doo s short-ter solvency Bc4ladrey* ?' J fifth largest U.S. assurance, ta9, and consulting fir$, (@ro$ inbound to
outbound& !he gradual shift of Chinese business in4est$ents , 8c7ladrey ::6, htt%&''$cgladrey.co$'Business-Cli$ate'@ro$-inbound-to-outbound-!he-gradual-shift-ofChinese-business-in4est$ents0 Fhen it co es to outside invest ents, #hinese business and political leaders are playing ost of their cards close to ho e. !he nation.s Co$$erce 8inistry re%orts that 3? percent of #hinese outbound invest ent last year "ent to 9sia* ost notably to co panies in Kong 2ong* South 2orea*-hailand* #a bodia and Aapan. 9nother 2( percent "ent to &atin 9 erica and 9frica* ainly in the for of invest ents to secure energy products and ra" aterials for anufacturing. #onversely* 7orth 9 erican invest ents "ere on a uch s aller scale* at 0ust 3.5 percent of the overall outbound cash flo". !o date, Bottelier says, the ost notable #hinese ac,uisition in the United States is &enovo 4roupEs:1.51 billion purchase of I;BEs personal co puting business. But that success . as well as a failed A*.*= $illion bid by China.s Iaier 7rou% to ac;uire a%%liance $anufacturer 8aytag . recei4ed scant attention co$%ared with the dust-u% when China National <ffshore <il (CN<<C0 bid a who%%ing A*,.B billion to buy Unocal. @acing intense %ublic and %olitical %ressure o4er the %ros%ect of foreign ownershi% of a $aFor energy %roducer, the California-based oil giant e4entually agreed to a %urchase by do$estic ri4al Che4ron Cor%. N!he CN<<C $anage$ent tea$ $ishandled this, largely because they were nai4e in thin#ing that a large ta#eo4er %lan in a sensiti4e industry would not ha4e %olitical ra$ifications,N Bottelier says. NAnd that e9%erience, co$bined with the >ubai %orts issue Oforeign in4estors see#ing to o%erate selected U.S. %ortsP, really ran#led the Chinese. !hey don.t belie4e that the U.S.genuinely welco$es Chinese in4est$ent.N Fhile itEs li!ely that #hinese investors "ill gradually play ore significant roles as suitors or venture capitalists to U.S. co panies* e+perts say business o"ners should not e+pect too uch* too soon. In the %ost-L'** world* the #o ittee on Loreign Invest ent in the United States is ta!ing a uch closer loo! at deals proposed by overseas interests . "ith an especially "ary eye cast on #hina. In a China Business Re4iew article earlier this year, authors >a4id 8archic# and Richard 8intD re%orted findings on a recent sur4ey of +)) U.S. opinion leaders* in "hich 1. percent said it "as Mtoo easyM for foreigners to buy U.S.assets. 2hen the %ros%ecti4e ac;uirer was identified as Chinese, that nu$ber Fu$%ed to HL %ercent. In so$e res%ects, the %ros%ect of substantial Chinese in4est$ent in U.S. businesses and infrastructure generates co$%arisons to the *L,)s, when Ga%anese in4estors aggressi4ely %ushed into U.S. co$$erce. But e9%erts note at least two distinct differences. @irst, Ga%anese in4est$ent was $ostly %ri4ate,while Chinese in4est$ent is still largely dri4en by state-owned co$%anies. And, after $ore than two decades of studying 2estern business %ractices, the Ga%anese e9ecuti4es were $uch better 4ersed in the art of the deal. M-he biggest hurdle the #hinese have right no" in gro"ing their outbound foreign invest ent is a lac! of !no"ledge*M ;ottelier says. M-hey have very little e+perience in developing and closing Festern-style ac,uisitions* so they are really learning ho" to do this al ost fro scratch.M

cyberattac!s turn
#hinese invest ent allo"s for econo ic espionage that co pro ises security Beuiner* 121co-director of the ?U 6rogra$ at 6rinceton Uni4ersity, Research Scholar at
the 2oodrow 2ilson School of 6ublic and International Affairs, (So%hie, !iger 6arents& Is there So$ething Q>ifferent3 About Chinese @>I in the U.S. and ?uro%e. , Iuffington 6ost, Gune +, ()*(, htt%&''www.huffington%ost.co$'so%hie-$eunier'a$c-entertain$entboughtRbR*BH,)E(.ht$l0''G5ahn -he security environ ent poses a third novel challenge. #hina is both a potential ilitary rival, as well as a hea4y in4estor in NrogueN states such as North 5orea

and Iran. One concern is that #hinese L6I in certain sectors runs the ris! of
enabling co ercial and state espionage and creates the possibility of dual-use technologies transferring into the hands of the $eople%s &iberation 9r y or pariah regi es. A second concern is that, contrary to historical %recedents, the flo" of technology has so far been rather unidirectional* "ith the investors learning the technology in the host country and e+porting it bac! to #hina* instead of bringing in technology along "ith the invest ent. A third concern is that ?uro%ean countries "ill beco e dependent on #hinese invest ent* "hich could provide #hina "ith political and security leverage.

#hinese econo ic espionage leads to cyberattac!s 6yer 1C1D J senior staff writer for the @inancial !i$es, (7eoff, China lin#ed to Qecono$ic
es%ionage3 , @inancial !i$es, 8ay *,, ()*(, htt%&''www.ft.co$'intl'c$s's')'L(dH)=(a-a*),**e*-Lfbd-))*++feabdc).ht$lSa9DD*D$A9>D<f0''G5ahn #hina is the "orld/s biggest supporter of >econo ic espionage@* the $entagon says in its annual report on the #hinese ilitary* "hich also clai ed that ;ei0ing/s defence budget is uch higher than official nu bers. Lriday/s report said #hina "ould continue to be an >aggressive and capable@ collector of sensitive US technological infor ation* including that o"ned by defence-related co panies* and represented a >gro"ing and persistent threat to US national security . Iigh ;uality global Fournalis$ re;uires in4est$ent. Chinese actors are the world3s $ost acti4e and %ersistent %er%etrators of econo$ic es%ionage, the re%ort said. -he $entagon report is the latest in a series of blunt "arnings fro the Oba a ad inistration about the gro"ing ris!s to US interests fro #hinese espionage* including fro cyberattac!s. 9 7ove ber report prepared by US intelligence agencies said that concerted cyber espionage by #hina and Russia posed >significant and gro"ing threats@ to 9 erican econo ic po"er and national security . 7i4en the lac# of trans%arency that has surrounded China3s $ilitary build-u%, the 6entagon3s annual analysis of Chinese defence s%ending is a closely watched docu$ent, e4en if so$e 6entagon critics fear that scare$ongering about China is being used to Fustify %arts of the US budget. ?4en by China3s official figures, $ilitary s%ending has increased at double-digit rates during al$ost e4ery year

for the last cou%le of decades, although as a %ro%ortion of o4erall s%ending the defence budget has re$ained relati4ely constant. !he 6entagon said China3s actual $ilitary s%ending in ()** was between A*()bn and *,)bn. !hat co$%ares to an official Chinese budget for ()*( of R$bHE).(+Ebn (A**)bn0, which was **.( %er cent higher than the year before. In ()**, China conducted the first test flight of the G-() stealth fighter Fet, while a refitted aircraft carrier ac;uired fro$ the So4iets was also launched last year. A$ong new de4elo%$ents in Chinese s%ending, the 6entagon said there were indications that %arts of a locally-$ade aircraft carrier were already under construction and could be o%erational by ()*B. !he re%ort said that the G-() test flight de$onstrated China3s a$bitions to de4elo% an aircraft that co$bined stealth attributes, ad4anced a4ionics and su%er-cruise engines , $a#ing it a %otential ri4al to the 6entagon3s own new generation fighter Fet, the @-(( Ra%tor. A se%arate US go4ern$ent docu$ent %ublished last $onth ;uoted US intelligence agencies as %redicting the Chinese Fets could be o%erational by ()*,. !he @-(( Ra%tor suffered a significant blow this wee# when strict restrictions were %laced on their use because of concerns about the safety of %ilots fro$ a lac# of o9ygen. !he @-(( has been contro4ersial for years, with %owerful critics in Congress clai$ing that the e9%ensi4e %roFect was not needed because there is no ob4ious ri4al. Iowe4er, its su%%orters %oint to Chinese and Russian efforts to build a new generation of stealth fighter Fets.

#yberattac!s lead to FB6 "arfare &a"son ?' (Sean, 6h.>. fro$ the >e%art$ent of Science and !echnology Studies at
Rensselaer 6olytechnic Institute dissertation on Nonlinear Science and the ?$ergence of Infor$ation Age 2arfare in the United States 8ilitary, Cross->o$ain Res%onse to Cyber Attac#s and the !hreat of Conflict ?scalation , htt%&''www.seanlawson.net'.%/+EE0 Based on the %re$ise that co$%letely blinding a %otential ad4ersary is a good indicator to that adversary that an attac! is i inent* Ranu$ has argued that >-he best thing that you could possibly do if you "ant to start Forld Far III is launch a cyber attac!. O...P 2hen %eo%le tal# about cyber war li#e it3s a %ractical thing, what they3re really doing is $essing with the <5 button for starting 2orld 2ar III. 2e need to get the$ to sit the f-# down and shut the f-# u%. O(P Ie is $a#ing a %oint si$ilar to one that I ha4e $ade in the %ast& !a#ing away an ad4ersary3s ability to $a#e rational decisions could bac#fire. O=P @or e9a$%le, 7regory 2itol cautions that attac#ing the decision $a#erTUVWVXUs ability to %erfor$ rational calculations $ay cause $ore %roble$s than it ho%es to resol4e. Re$o4ing the ca%acity for rational action $ay result in co$%letely unforeseen conse;uences, including longer and bloodier battles than $ay otherwise ha4e been. O+P Cross->o$ain Res%onse So, fro$ a theoretical stand%oint, I thin# his concerns are well founded. But the current state of U.S. %olicy $ay be cause for e4en greater concern. It3s not Fust worriso$e that a hy%othetical blinding attac# 4ia cybers%ace could send a signal of i$$inent attac# and therefore trigger an irrational res%onse fro$ the ad4ersary. 2hat is also cause for concern is that current U.S. policy indicates that >!inetic attac!s@ Gi.e. physical use of forceH are seen as potentially legiti ate responses to cyber attac!s. 8ost worriso$e is that current U.S. policy i plies that a nuclear response is possible* so$ething that %olicy $a#ers ha4e not denied in recent %ress re%orts. !he reason, in %art, is that the U.S. defense co unity has increasingly co e to see cyberspace as a >do ain of "arfare@ e,uivalent to air* land* sea* and space. -he definition of cyberspace as its o"n do ain of "arfare helps in its o"n right to blur the onlineCoffline* physical-spaceCcyberspace boundary. But thin#ing logically about the

%otential conse;uences of this fra$ing leads to so$e disconcerting conclusions. If cybers%ace is a do$ain of warfare, then it beco$es %ossible to define cyber attac#s (whate4er those $ay be said to entail0 as acts of war. But what ha%%ens if the U.S. is attac#ed in any of the other do$ains. It retaliates. But it usually does not res%ond only within the do$ain in which it was attac#ed. Rather, res%onses are ty%ically cross-do$ain res%onses Ji.e. a $assi4e bo$bing on U.S. soil or 4ital U.S. interests abroad (e.g. thin# L'** or 6earl Iarbor0 $ight lead to air stri#es against the attac#er. ?4en $ore li#ely gi4en a U.S. $ilitary way of warfare that e$%hasiDes $ultidi$ensional, Foint o%erations is a $assi4e con4entional (i.e. non-nuclear0 res%onse against the attac#er in all do$ains (air, land, sea, s%ace0, si$ultaneously. !he %ossibility of #inetic action in res%onse to cyber attac#, or as %art of offensi4e U.S. cyber o%erations, is %art of the current (())H0 National 8ilitary Strategy for Cybers%ace <%erations OBP& <f course, the possibility that a cyber attac! on the U.S. could lead to a U.S. nuclear reply constitutes possibly the ulti ate in >cross-do ain response.@ And while this $ay see$ far fetched* it has not been ruled out by U.S. defense policy a!ers and is* in fact* i plied in current U.S. defense policy docu ents . @ro$ the National 8ilitary Strategy of the United States (())+0& !he ter$ 28>'? relates to a broad range of ad4ersary ca%abilities that %ose %otentially de4astating i$%acts. 28>'? includes che$ical, biological, radiological, nuclear, and enhanced high e9%losi4e wea%ons as well as other, $ore asy$$etrical Qwea%ons3. !hey $ay rely $ore on disru%ti4e i$%act than destructi4e #inetic effects. @or e9a$%le, cyber attac#s on US co$$ercial infor$ation syste$s or attac#s against trans%ortation networ#s $ay ha4e a greater econo$ic or %sychological effect than a relati4ely s$all release of a lethal agent. OHP !he authors of a ())L National Acade$ies of Science re%ort on cyberwarfare res%ond to this by saying, Cou%led with the declaratory %olicy on nuclear wea%ons described earlier, this state$ent i$%lies that the United States "ill regard certain !inds of cyberattac!s against the United States as being in the sa e category as n b c "eapons* and thus that a nuclear response to certain !inds of cyberattac!s Gna ely* cyberattac!s "ith devastating i pactsH ay be possible.
uclear, iological, and he$ical

!ills co

petitiveness

#hinese invest ent "ill do nothing funding pro0ects "ill turn into a slippery slope that results in #hinese labor* co panies* and aterials FSA 3C21'*( (>inny 8c$ahon and Robbie 2helan, China in !al#s 2ith U.S. Io$e
Builder State Ban# in !al#s to 6ro4ide :ennar A*.E Billion for !wo :ong-Stalled 6roFects , !he 2all Street Gournal, Gune (B, ()*(, htt%&''online.wsF.co$'article'SB*)))*+(+)B(E)(=)++B,H)+BEE+,L)H(++L*B+*H,.ht$l0 In recent years, #hinese state oney1in large %art %ro4ided by C>B and its counter%art the ?9%ort-I$%ort Ban# of China1has been pivotal in funding a0or infrastructure and resource pro0ects around the "orld* but the bul! of that activity has been in developing countries in 9frica* South 9 erica and 9sia. !hat has resulted in the construction of da s* airports* rail"ays* high"ays and sports arenas that other"ise "ouldn%t get built* %ri$arily in de4elo%ing countries. Lunding is typically conditional upon #hinese developers and contractors being used to build the pro0ects. 9nd in order to !eep costs do"n* and in any cases to ensure the necessary e+pertise* at least a portion of the "or!force is flo"n in fro #hina. -his "ould be difficult or i possible in San Lrancisco* "here local regulations and deals cut "ith local govern ents generally re,uire developers to use local labor and pay prevailing "ages. !he C>B and the :ennar %artnershi% ha4e been in discussions to include China Railway Construction Cor%., **,H.I5 Y(.(BZ a state-run contractor, in the de4elo%$ent of !reasure Island and Iunters 6oint, according to %eo%le fa$iliar with the $atter. Fhile it is unclear "hat #R##%s role "ould be* the co pany could serve as an adviser or in an consulting role* or could possibly even invest in a local construction co pany that e ploys U.S. "or!ers* these people said. 2ith Chinese fir$s increasingly eyeing o%%ortunities in the U.S. and other de4elo%ed $ar#ets, C>B will li#ely find itself being a%%roached to fund $ore deals in the U.S. 6eo%le fa$iliar with the negotiations said C>B was using the !reasure Island and Iunters 6oint %roFects1which both include NgreenN building and affordable housing co$%onents that are of interest to Chinese builders1as a test case to beco$e fa$iliar with what[s re;uired for doing such deals in the U.S. 8ia$i-based :ennar, the third-largest U.S. ho$e builder $easured by the nu$ber of houses built, has a large %resence in California, and is well #nown for its ability to %ut together co$%le9 financial deals, usually in4ol4ing land.

-he counterplan is a slippery slope that "ill result in eventual #hinese industrial intervention that "ill cul inate in security ris!s that !ill co petitiveness ;arfield* 12 1 resident scholar the A$erican ?nter%rise Institute, (Claude, !he 2hite
Iouse and Congress re%el Chinese in4est$ent , A$erican ?nter%rise Institute, *'*L'*(, htt%&''www.aei.org'article'the-white-house-and-congress-re%el-chinese-in4est$ent'0''G: !he Chinese in4est$ent 4s. security dile$$as will only grow $ore difficult in the future. It is ti$e to clear the air with $ore %recise guidelines - or e4en red lines - where security is truly

Feo%ardiDed. 8uch of the fear o4er Iuawei, a A(, billion %ri4ate co$%any, ste$s fro$ its beginning. It was founded in *L,E by an e9-officer of the Chinese $ilitary, and during its early years recei4ed substantial boosts fro$ the Chinese go4ern$ent, including research organiDations with ties to the $ilitary. <4er the %ast decade, it has burst u%on the global teleco$$unications $ar#et, and now o%erates in *+) countries and ser4ices +B of the world[s largest teleco$$unications o%erators. !he co$%any is also a leader in infor$ation technology and is ra%idly $o4ing downstrea$ to co$%ete in the s$art%hones and ser4ices sectors. #ritics* including a nu ber of e bers of #ongress* argue that Kua"ei retains close ties "ith the #hinese ilitary and that the co pany represents a a0or threat to U.S. security through the potential of subverting national teleco s infrastructure and providing a vehicle for both econo ic and ilitary sabotage. Iuawei[s to% e9ecuti4es in the U.S. ha4e 4ehe$ently and doggedly denied such allegations. !hey assert that the co$%any has no ties to the Chinese $ilitary, and that it %ro4ides nor$al and 4ital co$$ercial teleco$$unications ser4ices and e;ui%$ent in the global $ar#et%lace. >es%ite its %rotestations, Kua"ei has been repeatedly rebuffed by U.S. govern ent agencies in atte pts to %urchase U.S. teleco$ assets and to gain a0or supply contracts "ith top U.S. syste operators such as S%rint and A!\!. In the U.S.* security-related invest ents are scrutini)ed by a federal inter-agency co ittee (the so-called C@IUS %rocess0, "hich is chaired by the -reasury 6epart ent and includes !ey defense and national intelligence officials. In two widely %ubliciDed actions, C@IUS officials inter4ened to sto% Iuawei fro$ assu$ing control of two assets - the =Co$ co$%any and intellectual %ro%erty owned by a s$all, ban#ru%t co$%any, =:eaf. Custo$arily, and in these %articular cases, C@IUS officials gi4e no s%ecific reasons for their actions, $erely in4o#ing general national security considerations. Under current la"* the U.S. security revie" process is li ited to screening invest ents in U.S. assets. It does not e+tend to contracts bet"een U.S. co panies and foreign co panies. 8et in the past t"o years* U.S. govern ent officials on several occasions have "arned U.S. co panies not to a"ard contracts to Kua"ei or face the prospect of cutoff of future govern ent contracts the selves. In one case, this $essage was con4eyed in a %hone call by the Secretary of Co$$erce, and on a second occasion by a direct co$$unication fro$ the head of the National Security Agency. Such behind-the-scenes, e9 %arte inter4entions clearly under$ine U.S. de$ands that BeiFing adhere to the rule of law with attendant due %rocess. -he decision by the Oba a ad inistration to create a tas! force to analy)e potential security threats fro foreign o"nership and foreign contracts in the U.S. teleco$$unications sector, co$bined with a full-scale in4estigation of Iuawei by the Iouse Intelligence Co$$ittee, represent a conse,uential o ent in U.S.-#hina ties . 2hen it co$es to national security, there will always be instances when closed-door re4iew sessions are a%%ro%riate - including in the case of Iuawei. But neither the 2hite Iouse nor the Congress should be allowed to hide co$%letely behind 4ague, Nnational securityN concerns. After serious, thorough e9a$inations - through coordination with national intelligence agencies by the 2hite Iouse and through o%en hearings and security briefings by the congressional co$$ittee - both branches of the go4ern$ent should $a#e %ublic their conclusions. It[s what we would rightfully de$and of BeiFing. And it[s what we should e9%ect of 2ashington. If these are bad guys, say soC if nothing is unco4ered, butt out.

u.s. says no
-he counterplan fails assive political suspicions and perception of security ris!s Rosen and Kane ann* 11 J %rofessor at Colu$bia Uni4ersity, @ellow with the 6eterson
Institute for International ?cono$ics, and Senior Ad4isor for International ?cono$ic 6olicy at the 2hite Iouse National ?cono$ic Council and National Security Council, AN>K is Research >irector at the Rhodiu$ 7rou%, s%ecialiDing in China3s $acroecono$ic de4elo%$ent and the i$%lications for global trade and in4est$ent flows (>aniel \ !hilo, An A$erican <%en >oor.& 8a9i$ising the Benefits of Chinese @oreign >irect in4est$ent , 8ay ()**, htt%&''www.ogil4y%r.co$'files'ana$ericano%endoorRchinaRfdiRstudy.%df0''G5ahn 2e conclude that the recent growth of #hinese direct invest ent in the United States is proof of its great potential, but given the parade of political fear ongering seen so far* those benefits li!ely "ill be s,uandered if steps are not ta!en to restore clear thin!ing. !herefore, we offer a series of reco$$endations intended to alle4iate the ris# of di4erting Chinese direct in4est$ent fro$ the United States by $aintaining the best %ossible security screening %rocess, !eeping 9 erica/s door open to the benefits of a #hina going global* and actively attracting the right invest ents fro #hina so that the benefits for 9 ericans are assured . 2e su$$ariDe these
reco$$endations here and elaborate on the$ at the conclusion. *. Send a clear and bi%artisan $essage that Chinese in4est$ent is welco$e. !hough the annual nu$bers are doubling*

there is a gro"ing perception in #hina that the United States is not enthusiastic about #hinese invest ent. 2ashington $ust reca%ture the high
ground on this to%ic by %ointing to the healthy growth in those in4est$ent flows to date and by $a#ing clear that U.S. %olicy will re$ain acco$$odati4e. 9

an une,uivocal

bipartisan congressionale+ecutive state ent is needed to send essage of support for increased invest ent fro #hina. It is es%ecially

i$%ortant that the U.S. Congress %lays a %ositi4e role in this $essaging gi4en its o4ersight role and recent acti4is$ on foreign in4est$ent. (. Syste$atiDe the %ro$otion of @>I fro$ China and elsewhere. 9

revie" of U.S. efforts to attract invest ent fro #hina and other countries is needed . !he current laisse)-faire approach ste$s fro$ an era when the United States do$inated global @>I flowsC it assu es that the United States re ains unrivaled in its attractiveness and functions as though all foreign investors co e fro si ilar countries that do not need uch on-theground assistance. -hat situation has changed. Bore proactive easures are needed* not 0ust at the state and local level* "here earnest efforts are afoot* but also at the national level* "here for al and infor al barriers to foreign invest ent arise =. 6rotect the in4est$ent re4iew %rocess fro$ interference. !he for$al U.S. %rocess of screening for national security concerns is generally well designed, but it is in urgent need of protection fro politici)ation. If political interference is not te pered* so e of the benefits of #hinese invest ent catalogued in this study1such as 0ob creation* consu er "elfare* and even contributions to U.S. infrastructure rene"al<ris! being diverted to U.S. co petitors. So$e in China
suggest that the United States %ublish a catalogue of o%en industries, Fust as the Chinese go4ern$ent does. 2hile that suggestion is understandable in light of their recent e9%erience, this

approach is not suited to the United States. Fithin a given industry* there are acceptable and unacceptable invest ents* and it is i possible to anticipate all eventualities in advance . C@IUS is right to as# not whether China has hidden agendas and a$bitions or whether a %articular industry can be sensiti4e, but whether a specific deal constitutes an actual national security threat. In short* the e+isting U.S. revie"

policy process is "orth protecting. #LIUS should further i prove the transparency of its decision- a!ing process and find ways to offer e4en better assurance that it is #ee%ing
to its $andate of solely screening in4est$ent for national security threats. Calls to alter the re4iew %rocess in ways that would allow further interference1by allowing national econo$ic security ;uestions to be subFect to re4iew, for e9a$%le1$ust be reFected. +. 2or# to better understand Chinese $oti4es. Bany

9 ericans<including any officials in Fashington<believe that because #hina has so any state-o"ned enterprises* ar!et forces and profit otives do not necessarily apply in that country. -herefore* they suspect that if a #hinese fir is co ing to 9 erica* it ust be for so e political purpose rather than si ply to a!e oney. !his conclusion is wrong, and if we are to $a9i$iDe U.S. interests, such $isa%%rehensions $ust be corrected. But $a#ing clear that behind all of the rhetoric of statis and central planning, #hina/s fir s typically put self-interest and profit above else, is no easy tas#. !he %ro%onents and beneficiaries of Chinese in4est$ent in the United States1including deal
$a#ers, 4enture %artners, sellers, and localities1need to bear $ore of the burden of de$onstrating this $ar#et orientation. By issuing the #ind of bi%artisan state$ent suggested earlier, U.S. %olicy $a#ers can contribute to this rea%%raisal of Chinese obFecti4es. And, of course, econo$ists and %olicy analysts $ust redouble their efforts to $a#e China co$%rehensible to both U.S. leaders and the general %ublic. B. Co$$unicate to China its share of the burden. China 4ery $uch shares res%onsibility for the breadth of A$erican $isgi4ings. After all, at state e9ecuti4e su$$ary related fir$s, es%ecially the $aFor state-owned enter%rises, which $a#e u% al$ost half of all industrial assets, business decisions routinely are subFected to %olitical considerations and e9ecuti4es are beholden to the dictates of the Chinese Co$$unist 6arty. ?4en at %ri4ate fir$s, nontrans%arent go4ernance %ractices are co$$on. And while this o%acity $ay be about shrouding the %rofit strea$s of %ri4ileged indi4iduals $ore than anything else, A$erican screeners cannot discreetly a4ert their gaDe as Chinese regulators and bureaucrats do. If China wants a $ore straightforward hearing for its fir$s in 2ashington, it $ust i$%ro4e cor%orate go4ernance at ho$e. 2e reco$$end that U.S. officials reclai$ the high road fro$ co$$entators who allege that 2ashington is unfairly bloc#ing foreign fir$s, and call for a $aFor i$%ro4e$ent in Chinese cor%orate trans%arency so that regulators can do their Fobs $ore easily. <ther $easures can hel% as well. A clearer se%aration between Chinese regulators and the fir$s they o4ersee would hel% alle4iate foreign sus%icions. A consu$eroriented welfare test in China3s co$%etition %olicy also would hel% ensure that $ar#et %erfor$ance, not other state obFecti4es, is the deter$inant of a gi4en Chinese fir$3s beha4ior. <f course, if China were to dis$antle its syste$ of state ca%italis$, U.S. officials would be far less worried about Chinese cor%orate intentions and the %ros%ect of %redatory intent fro$ the fir$s under BeiFing3s influence. But A$ericans should not e9%ect China to change o4ernight. In the $eanti$e, it should be clear that while Chinese in4est$ent is $ore than welco$e, U.S. regulators ha4e a legiti$ate interest in who is in4esting in the United States. H. Re$ain o%en to what if scenarios. In ter$s of nontraditional econo$ic threats *

a large enough econo

y to be a price

U.S. concerns that #hina could beco e a!er instead of a price ta!er are legiti ate. a!e up an ever ore influential share

If China3s sheer siDe, co$bined with its artificial %ricing structures (e.g., the cost of ca%ital arising fro$ financial re%ression0 were to %oison global $ar#ets in the future, as #hinese

outflo"s

of "orld totals, then a subsidy-disci%lining regi$e for global direct in4est$ent a#in to that for trade would beco$e
necessary. 2e sus%ect that China3s e9isting statist %references will brea# down %rior to that %oint, but we cannot be sure. !here is no consensus on how to assess unfair influence of one nation3s do$estic ca%ital costs on world %rices. !herefore, we reco$$end an international effort to thin# through these ;uestions now, because answers $ay well be needed in the near future. E. >o not %lay the reci%rocity ga$e. !he ter$ reci%rocity has been used too fre;uently in the conte9t of Chinese in4est$ent1 na$ely *

is discri inatory against U.S. invest !ind. 2e reco$$end greater caution. China does $aintain significant inward in4est$ent restrictions, but BeiFing has been a

if #hina ent* the United States should reciprocate in

leader in direct in4est$ent o%enness for decades, and the notion of withholding U.S. in4est$ent access for $ore access in China is both foolish and against A$erican interests. "es, U.S. negotiators $ust %ress China to o%en wider to U.S. in4estors. But it is e$%hatically in A$erica3s interests to se%arate that effort fro$ whether to %er$it cash to flow fro$ China into the United States. !he United States should welco$e ca%ital fro$ China, regardless of what BeiFing3s state %lanners ha4e to say about foreign in4est$ent in China. @or =) years, China has grown stronger by o%ening its door wider to @>I, irres%ecti4e of o4erseas o%enness. !he United States should do the sa$e, or ris# Chinese fir$s setting u% %lants in <ntario instead of 8ichigan, or GuareD instead of ?l 6aso.

-he sovereign "ealth fund fails and the U.S. re0ects e+pertise because of past failure Steinboc!* 12 1 research director of International Business at !he India, China, and
A$erica Institute, and Misiting @ellow at Shanghai Institutes for International Studies (China0,

(>an, 2hy Chinese @>I Re$ains 8arginal in the United States , ?cono8onitor, ('(L'*(, htt%&''www.econo$onitor.co$'blog'()*(')('why-chinese-fdi-re$ains-$arginal-in-theunited-states'0''G: Between ())B and ()*), #hina/s L6I abroad soared fro$ an annual a4erage of below A= billion to $ore than AB) billion, bringing its total global @>I stoc# abroad to o4er A=)) billion. In the past, $ost of this in4est$ent "as still concentrated on developing countries and a fe" resource-rich developed econo ies. ;ut things are changing. 6uring the ongoing decade* #hinese L6I "ill shift ore to"ard developed econo ies. In China, structural adFust$ent tends to fuel outward in4est$ent. !y%ically, co panies invest in a broad array of U.S. industries* especially in sectors hit by ad0ust ent pressures in #hina, including real estate and renewable energy. In ()*), #hina/s L6I stoc! in the U.S. "as esti ated at :1.' billion, which indicates an increase of al$ost +)) %ercent in co$%arison to ()),. Ko"ever* this o entu has not been sustained. 9s #hina/s sovereign "ealth fund e+pressed its interest in investing in U.S . and ?uro%ean infrastructure* #hinese invest ent in teleco$ infrastructure ca e under rene"ed scrutiny. A year ago, #hinese co panies recorded a failure rate of 11 percent in their atte pts at buying or erging "ith foreign fir s , according to research fir$ >ealogic. !he rate for the US was ( %ercent and that for the U5 * %ercent, res%ecti4ely. In Fashington* the challenges are often e+plained by the failure rate of #hinese co panies* "hich is attributed to ine+perience. And certainly, it is true that #hinese fir s are very young and have substantial challenges in the foreign ar!ets. In the United States, $any of the established $ultinational cor%orations, fro$ 7eneral 8otors to Coca-Cola, were founded $ore than a century ago. ?4en the leading high-tech fir$s, such as I-6 and Intel, are so$e half a century old. In contrast, Chinese co$%anies that ho%e to beco$e global $ust learn 4ery $uch 4ery ;uic#ly about new $ar#ets, co$%etitors, regulatory syste$s, and cultures. Nonetheless, these challenges do not e9%lain the relati4ely high failure rate. According to Chinese obser4ers, %rotectionis$ has increased against Chinese co$%anies, es%ecially high-tech co$%anies li#e Iuawei and ]!?.

can/t solve sti

ulus

-he source of the oney is relevant if initial invest ent isn/t fro the U.S.* it eans "or!ers "or! for debt instead of oney Falton* (CD'*( - A.B. *LE+ ?cono$ics'Accounting, 8uhlenberg College, colu$nist whose
articles fre;uently a%%ear in the 2ashington 6ost, staff writer for construction >igital, (Gohn, China :oo#ing to In4est in U.S. Infrastructure , Construction >igital, 8arch ,, ()*(, htt%&''www.constructiondigital.co$'underRconstruction'china-loo#ing-to-in4est-in-usinfrastructure0''G5ahn U.S. fir s* ho"ever* are ostly opposed to the 9sian in-sourcing as uch needed 0obs and revenue are being lost to foreign co panies. -he recent San LranciscoOa!land ;ay ;ridge pro0ect* for e+a ple* "as a"arded to one of #hina/s largest heavy- achinery a!ers* hurting local econo ies but ulti ately saving hundreds of illions on the pro0ect. S%ea#ing on the outsourcing trend, California Asse$bly$an :uis AleFo recently told the N6R, It gi4es thousands of (US0 fa$ilies those Fobs, and then those %ay chec#s and their subse;uent s%ending ends u% going bac# into our (the US0 econo$y. 9nd so no" all that oney has per anently disappeared fro #alifornia .@ Fhether state and federal officials "ill choose savings over 0ob creation and national econo ic gro"th re ains to be seen in the co ing infrastructure rene"al in the U.S.* but an increasing nu ber of #hinese co panies are loo!ing to share in so e of the action.

Loreign invest ent/s useless do estic invest ent/s the only "ay to solve sti ulus &ind* 1? 1 6olicy director of the ?cono$ic 7rowth 6rogra$ at the New A$erican
@oundation (8ichael, Can infrastructure-led growth sa4e the econo$y. , Salon.co$, E'*=, htt%&''www.salon.co$'()*)')E'*='lindRta9esRborrowingRinfrastructure'0''G: 2hat about %ri4ate foreign de$and. In the %ast, so$e countries li#e Ga%an and Sweden ha4e $anaged to grow in the after$ath of asset bubbles with the hel% of foreign e9%ort $ar#ets and currency de4aluations. Could the U.S. e9%ort its way out of %rolonged stagnation. !he <ba$a ad$inistration see$s to thin# so. But 6resident Oba a/s bold ai of doubling e+ports is at odds "ith his s all-bore proposals & $ore %oultry sales to China, $ore %or# sales to Russia, and $ore A$erican e9%orts to Colo$bia. Fe are e+pected to believe that the Oba a ad inistration "ill acco plish a re ar!able e+pansion of U.S. e+ports "ithout retaliating against #hina for its currency anipulation* devaluing the dollar against 9sian currencies and the euro* preventing i ports fro gro"ing even ore rapidly, or %racticing anything that could be denounced by Re%ublican conser4ati4es and the Robert Rubin'2all Street wing of the >e$ocratic 6arty as industrial %olicy. ?4en if the U.S. were genuinely co$$itted to increasing e9%orts, such a policy "ould be unli!ely to succeed. 6ro%onents of global rebalancing argue, correctly, that trade deficit nations li#e the U.S. should e9%ort $ore, while trade sur%lus countries li#e China, Ga%an and 7er$any should i$%ort $ore 1 including $ore A$erican %roducts. But des%ite %aying li% ser4ice to rebalancing, China, Ga%an and 7er$any still ho%e to e9%ort their way out of the

recession. Iow can $uch-hy%ed A$erican green e9%orts in %articular lead A$erican growth, if the rest of the world wants to sell wind$ills, solar %ower and high-s%eed trains to us, rather than buy fro$ us. !o $a#e $atters worse, the austerity %rogra$s being ado%ted by $any ?uro%ean countries will shrin# the ?uro%ean consu$er $ar#et, and a wea# euro and stronger dollar will hurt A$erican e9%orters as well. In theory, foreign %ublic de$and could re%lace A$erican consu$er de$and. Iowe4er, there are few cases of %ublic %rocure$ent in one country dri4ing e9%ort growth in another, although Ga%anese industry benefited fro$ its role as a su%%lier to the U.S. during the early Cold 2ar. 9 civilian e,uivalent today "ould be infrastructure-led gro"th in Africa and other de4elo%ing regions, paid for by govern ent borro"ing or foreign direct invest ent. ;ut the oney is not there. 9nd if it "ere* can anyone seriously believe that 9 erican businesses "ould not be largely loc!ed out of public procure ent in the global South by the ercantilist nations of 9sia and =urope* "hich do not share 9 erican concerns about free ar!ets* industrial espionage and hu an rightsE A$erican $ultinationals that do ta#e %art in infrastructure-led growth in the de4elo%ing world are li#ely to hire local labor and to source in%uts fro$ all o4er the world, rather than use raw $aterials and %roducts that are $ade in A$erica. If neither foreign private de and nor foreign public de and can co pensate for the loss of 9 erican private do estic de and* then the only possible source of increased de and for 9 erican goods and services that re ains is public do estic de and. 9 erican govern ent at all levels $ay need to provide uch of the issing de and for 9 erican businesses and labor , for the decade or longer that is needed for %ri4ate sector dele4eraging in the after$ath of A$erica3s asset bubble. !o a4oid co$%eting with %ri4ate enter%rise, the go4ern$ent should %roduce %ublic goods that increase o4erall %roducti4ity and that the %ri4ate sector has no incenti4e to %ro4ide, in good ti$es or bad, such as infrastructure and social ser4ices li#e %olicing, health care, education and care for the young and old. In addition to $obiliDing idle resources and labor directly, both infrastructure and %ublic ser4ice s%ending could hel% business in general by boosting the %urchasing %ower of A$ericans who are now une$%loyed. Infrastructure-led growth could boost %ri4ate-sector %roducti4ity if it lowered energy costs for businesses and households, reduced freight and %assenger congestion or increased the efficiency of teleco$$unications while lowering the cost. At the sa$e ti$e, infrastructure-led growth could bolster A$erican $anufacturers and su%%liers and %re%are for an e9%ort rebound in the future, as long as Buy A$erican laws re;uired that all infrastructure in%uts li#e steel, concrete and electronic co$%onents, and all e,uip ent used to construct infrastructure* including achine tools and construction vehicles* ust be ade in the U.S . If the 2orld !rade <rganiDation were to rule against such a Buy A$erican %olicy, then the U.S. should de$and a change in 2!< rules, on %enalty of unilateral U.S. withdrawal and the colla%se of the 2!<. Buy A$erican %olicies should be co$bined with Iire A$erican %olicies that %ro4ide Fobs for $any of the A$erican citiDens and legal i$$igrants who for$erly wor#ed in construction. Lollo"ing decades in "hich private residential construction encouraged illegal i igration* public infrastructure construction should deter it. Iow should we %ay for %ublic do$estic de$and-led growth. By $ore borrowing and by higher ta9es that fall dis%ro%ortionately on the rich. ;oth "ould channel no"-idle savings into enhancing the infrastructure net"or!s and anufacturing base of the U.S. Infrastructure pro0ects that enhance 9 erican productivity should be paid for by borro"ing* "ith

their costs repaid ore rapidly over decades or generations "ith the help of the ore rapid econo ic gro"th that they a!e possible . If $ore federal borrowing is bloc#ed by the irrationality of deficit haw#s and the ignorance of $any %o%ulists who do not understand %ublic finance, then $oney for infrastructure should be raised by ta9-fa4ored $unici%al bonds, li#e Build A$erica Bonds (BABs0, and'or by the creation of %ublic in4est$ent ban#s, li#e a national infrastructure ban#, that can raise funds by issuing their own go4ern$entbac#ed but off-budget bonds. >eficit hysterics to the contrary, U.S. federal, state and local debt, along with the agency debt issued by go4ern$ent-s%onsored enter%rises, will continue to %ro4ide desirable, safe in4est$ents for in4estors at ho$e and abroad.

lin!s to politics
&in!s to politics congress is inherently protectionist* and opposes #hinese invest ent at all costs ;;# /1? (Agency urges U.S. not to be Qo4er-sensiti4e3 about Chinese In4est$ents , BBC
8onitoring Asia-6acific, E'H'*), :e9is0 As a $atter of fact, the 0oint venture is a "in-"in pro0ect for both the #hinese and US co panies. Lor 9ngang* the pro0ect "ould help e+pand its international ar!et , while for the Steel 6evelop ent #o.* the effort "ill lo"er costs and speed up its globali)ation. It is ob4ious that the baseless accusations against the pro0ect not only har the interests of the #hinese co pany* they also hurt the US co pany as well. In recent years, on the one hand, so$e A$erican %oliticians ha4e re%eatedly co$%lained about the i$balance of US-China trade, and on the other, the US side has li$ited the e9%ort of its technology-intensified %roducts to China and $ade hindrance to Chinese co$%anies[s in4est$ent in the US. It is #nown to all that #hinese co panies% direct invest ent in the United States is one solution to the i balance* but if the 9 erican side follo"s the logic of the above- entioned congress en* it "ill only a!e things "orse. ;y root* the logic of those congress en reflects the over-sensitive psychology of certain US politicians to"ards #hina. It also signals their tendency to"ards protectionis . Nowadays, to fight against in4est$ent %rotectionis$ has beo$e a co$$on %ro$ise of the international co$$unity.

-he counterplan lin!s to politics suspicions* lobbies* and national security concerns Rosen and Kane ann* 11 J %rofessor at Colu$bia Uni4ersity, @ellow with the 6eterson
Institute for International ?cono$ics, and Senior Ad4isor for International ?cono$ic 6olicy at the 2hite Iouse National ?cono$ic Council and National Security Council, AN>K is Research >irector at the Rhodiu$ 7rou%, s%ecialiDing in China3s $acroecono$ic de4elo%$ent and the i$%lications for global trade and in4est$ent flows (>aniel \ !hilo, An A$erican <%en >oor.& 8a9i$ising the Benefits of Chinese @oreign >irect in4est$ent , 8ay ()**, htt%&''www.ogil4y%r.co$'files'ana$ericano%endoorRchinaRfdiRstudy.%df0''G5ahn !he greater concern is not U.S. %olicy, but U.S. politics, "hich is prone to capriciousness and ends up diverting the benefits of #hinese direct invest ent to "or!ers and co unities in other nations if not corrected. $olitical interference in the L6I screening process* "hether to protect special interests here fro econo ic co petition or to pursue a >fortress 9 erica@ vision of national security* "ill have a to+ic effect on even the ost "ell-thought-out policy regi es . As shown in Section IM, it already has, as #hinese invest ents have been sub0ect to serious politici)ation* an outgro"th of unfa iliarity* suspiciousness* lobbying efforts by vested interests* and the co ple+ity of the overall U.S.#hina relationship. One cannot eli inate political interference in a participatory de ocracy* but the conse;uences $ust be recogniDed and $oderated. 2e $ust always #ee% the %ressure on C@IUS to catch threats to A$erica. But while C@IUS re4iews are %redictable*

rando eruptions of protectionis as,uerading as national security concern s are not. =ven the odest level of #hinese direct invest ent to date has sto!ed political fires, though A$erica3s door to China so far has re$ained o%en. 2eeping it open in the future "ill ta!e "or!* but it can be done. An o%en door is no guarantee that %eo%le will wal# in, though. >oors are o%en to China all around the world1a world in which A$erica is no longer the only %lace to set u% sho%. Iere, we offer reco$$endations to %ro$ote each of these concluding i$%erati4es& $aintaining the best security screening %rocess, #ee%ing A$erica3s door o%en to the benefits of China going global, and $ore acti4ely attracting the right in4est$ents fro$ China so the benefits for A$ericans are assured.

-he counterplan lin!s to politics re,uires congressional approval "hich ensures resistance Rosen and Kane ann* 11 J %rofessor at Colu$bia Uni4ersity, @ellow with the 6eterson
Institute for International ?cono$ics, and Senior Ad4isor for International ?cono$ic 6olicy at the 2hite Iouse National ?cono$ic Council and National Security Council, AN>K is Research >irector at the Rhodiu$ 7rou%, s%ecialiDing in China3s $acroecono$ic de4elo%$ent and the i$%lications for global trade and in4est$ent flows (>aniel \ !hilo, An A$erican <%en >oor.& 8a9i$ising the Benefits of Chinese @oreign >irect in4est$ent , 8ay ()**, htt%&''www.ogil4y%r.co$'files'ana$ericano%endoorRchinaRfdiRstudy.%df0 -he other gate!eeper to approval for investing in 9 erica* ho"ever* is national politics ore broadly* especially the #ongress . $oliticians/ po"er to threaten to i pose unacceptably high costs on potential invest ents gives the an ability to al ost veto specific deals for reasons not li ited to true national security. Such politici)ation* in an era of general an+iety about #hina/s rise* presents a very serious threat to the functioning of the direct invest ent screening process . #hinese investors, though attracted by the United States3 wealthy consu$er base, s#illed labor, sound regulatory en4iron$ent, and i$%ressi4e technology and #nowhow, are confused and cynical about the relationship bet"een policy and politics. !he bul# of Chinese in4est$ents go through without a %roble$ todayC $ost ob4iously do not re;uire a re4iew for national security, or they are greenfields, and those that do re;uire re4iew al$ost always get a fair hearing. But the signals fro Fashington are i+ed, and do not co$e Fust fro$ C@IUS. 2ithin the national security co$$unity, 4oices are ad4ocating for a $ore onerous screening. -he politici)ation in a handful of pro inent cases has left the i pression that #hinese invest ent is not "elco e in the United States (see Bo9 +0. !he conse;uences of the $i9ed signals between our two A$erican door$en are not so acute now, but they certainly will be in the future.

at benefits shield lin! to politics

-he counterplan lin!s to politics #hinese invest ent creates assive congressional suspicion despite perception of benefits Rosen and Kane ann* 11 J %rofessor at Colu$bia Uni4ersity, @ellow with the 6eterson
Institute for International ?cono$ics, and Senior Ad4isor for International ?cono$ic 6olicy at the 2hite Iouse National ?cono$ic Council and National Security Council, AN>K is Research >irector at the Rhodiu$ 7rou%, s%ecialiDing in China3s $acroecono$ic de4elo%$ent and the i$%lications for global trade and in4est$ent flows (>aniel \ !hilo, An A$erican <%en >oor.& 8a9i$ising the Benefits of Chinese @oreign >irect in4est$ent , 8ay ()**, htt%&''www.ogil4y%r.co$'files'ana$ericano%endoorRchinaRfdiRstudy.%df0''G5ahn Iowe4er, surging #hinese invest ent has triggered an+ieties as "ell as e+cite ent a ong 9 ericans. Ba0or #hinese invest ent overtures have foundered in recent years* creating uncertainty and ill "ill bet"een the t"o nations. !hough the legally $andated screening organ for national security ris#s, the Co$$ittee on @oreign In4est$ent in the United States (C@IUS0, generally has o%erated in a fair $anner* bad publicity stirred up by the threat of congressional interference is having a chilling effect on #hinese readiness to invest in the United States by sending confusing and unclear essages. 7o"adays* "henever a #hinese invest ent proposal is announced* the first ,uestion the edia poses is not ho" any 0obs it ight create* but "hether groups in Fashington "ill try to bloc! it* "ith little regard for "hether there is actually any threat entailed. -his is ironic* as ost #hina-bac!ed deals are not covered by #LIUS* and those that are al ost al"ays receive proper hearings. 8oreo4er, because such hostile receptions scare a"ay needed<and legiti ate< invest ent* invite retaliation against U.S. fir s abroad* and distract 9 ericans fro the serious tas! of assessing real security concerns* they are dangerous to the national interest. Iere, the e9a$%le of Ga%an is instructi4e. Ga%an3s first in4est$ents in the United States during the *L,)s were al$ost as contro4ersial as China3s, but in the following years, U.S. affiliates of Ga%anese co$%anies in4ested hundreds of billions of dollars in the United States, and today e$%loy nearly E)),))) A$ericans.

at treasury bonds nb
#hina "on/t sell U.S. treasuries e+port hedging and 8uan inflation #;S* ?' (Charles 2allace, staff writer, 2hy China 2on[t >u$% the >ollar Any !i$e Soon ,
CBS News, A%ril L, ())L, htt%&''www.cbsnews.co$',=)*-B)B*(=R*H(-=HE+)()*'why-chinawont-du$%-the-dollar-any-ti$e-soon'0''G5ahn !here[s been a lot of tal# lately about how unha%%y China has beco$e about its financial de%endence on the U.S. Chinese 6re$ier 2en Gibao said he was a Nlittle bit worriedN about China[s huge in4est$ents in the U.S., and the Chinese central ban# e4en suggested that it $ight be a good idea if the U.S. dollar was no longer the international reser4e currency. "ou $ay be wondering what e4ents B,))) $iles away $ight ha4e to do with the A$erican consu$er. As it turns out, there are two big ways in which Chinese actions could hit A$ericans in the %oc#etboo#& @irst, and $ost ob4ious, are the re%ercussions should the dollar fall significantly against the Chinese yuan. !hat would $ean higher %rices in stores li#e 2al-8art and !arget, which i$%ort lots of goods fro$ China. Second, and %otentially $uch $ore serious, China could grow so concerned about its in4est$ents in U.S. !reasury bonds that it $ight sto% buying the$ -- and could e4en start selling. !hat would force u% U.S. interest rates, hobbling the go4ern$ent[s efforts to sti$ulate the econo$y while also $a#ing car loans and credit card interest $uch $ore e9%ensi4e. !hat too could lead to a decline in the 4alue of the dollar, causing inflation in the U.S. to s%i#e u%ward. Kere%s "hy I don%t thin! either scenario see s li!ely. -he first is the #hinese have huge reserves of U.S. invest ents. 9ccording to ;rad Setser* an acade ic "ho closely follo"s "hat the #hinese do "ith their oney* the #hinese o"n about :51? billion in U.S. -reasuries* "idely considered the safest for of debt* :1?? billion "orth of bonds fro govern ent-controlled ortgage lenders Lreddie Bac and Lannie Bae* :11? billion of U.S. corporate bonds and :1?? billion in 9 erican stoc!s. If #hina let the yuan rise against the dollar*all those invest ents "ould be "orth less in #hina%s o"n currency . Needless to say, that[s not e9actly in China[s best interest. Iowe4er, li#e e4ery in4estor in A$erica, the Chinese ha4e recently watched their U.S. bond and stoc# holdings decline shar%ly in 4alue. !hose losses, in fact, were %robably what 2en had in $ind when he o%ened his $outh, not U.S. !reasuries. 9nyone "ith large holdings of U.S. -reasuries luc!ed out this year* as they "ere a ong the "orld%s best perfor ing assets. 2hile so$e %undits ha4e e9%ressed the 4iew that the Chinese ha4e fallen in a dollar tra% in which the Chinese ha4e no choice but to $aintain their U.S. in4est$ents, I thin# they $ade an e9tre$ely good in4est$ent decision. Fas this an accident by ;ei0ingE -he #hinese li!ely understood that there "as so e ris! in their dollar invest ents* especially those volatile stoc!s* and have since scaled bac! those invest ents Gli!e any 9 erican investorsH* according to Set)er. ;ut #hina also !no"s that holding all those dollars is good policy because that props the value of the dollar against the #hinese currency . A strong dollar $a#es Chinese e9%orts chea% for A$erican consu$ers. As a result, a huge e9%ort boo$ lifted the Chinese econo$y o4er the %ast three decades. -hat%s also "hy the #hinese are unli!ely to shift out of dollars into another reserve currency . 2hat would it be. !he Chinese %lan, outlined by the country[s central ban# go4ernor, ]hou ^iaochuan, suggested

re%lacing the dollar with s%ecial drawing rights, or S>Rs, a hy%othetical currency used by the International 8onetary @und. S>Rs are basically a bas#et of currencies -- dollars, yen, British %ounds, and euros. 2hile S>Rs ha4e $ost fallen out of fa4or, there[s nothing to sto% the Chinese fro$ di4ersifying their huge reser4es into these other three currencies. But they ha4en[t. Instead they ha4e o%ened so-called swa% arrange$ents with a few countries li#e Argentina, Indonesia and 8alaysia. Under these deals, China has lent an esti$ated A*)) billion worth of yuan to these countries[ central ban#s so that i$%orters in those %laces can buy directly fro$ China without using dollars. It[s an early sign the Chinese are trying to di4ersify away fro$ dollar-deno$inated trade and bears watching. But so far they in4ol4e only a tiny co$%onent of China[s e9%ort $ar#et, which continues to de%end hea4ily on the U.S. and ?uro%e. :i#e in4estors worldwide, the Chinese re$ain afraid that the U.S. will de4alue the dollar 4ia inflation -- in essence, by %rinting of trillions of dollars to %ay for huge budget deficits. 6erha%s it[s not su%rising that they should e9%ress a Nlittle worryN about their $assi4e dollar holdings. If the U.S. dollar declines, they[ll be a$ong the first to be i$%acted. 6espite those "orries* though* #hina is increasing its U.S. -reasury holdings* a sign that they still have confidence in the U.S. govern ent and its ability to repay its debts. No other currency is so widely used in trade, and all $aFor co$$odities are still %riced in dollars. As a result, it[s still in China[s best interest to $aintain a $aFority of its assets in dollars.

#hina "on/t sell treasuries #RS /?' J Congressional Research Ser4ice, 2ayne 8. 8orrison, s%ecialist in Asian !rade and
@inance, 8arc :abonte, s%ecialist in $acroecono$ic 6olicy, (China3s Ioldings of U.S. Securities& I$%lications for the U.S. ?cono$y , Guly =), ())L, www.crs.go40 <ther obser4es counter that it "ould not be in #hina/s econo ic interest to suddenly sell off its U.S. invest ent holdings. 6oing so could lead to financial losses for the #hinese govern ent* and any shoc!s to the U.S. econo y caused by this action could ulti ately hurt #hina/s econo y as "ell. !he issue of China3s large holdings of U.S. securities is %art of a
larger debate a$ong econo$ists o4er how long the high U.S. reliance on foreign in4est$ent can be sustained, to what e9tent that reliance %oses ris#s to the econo$y, and how to e4aluate the costs associated with borrowing 4ersus the benefits that would accrue to the econo$y fro$ that %ractice. ;ecause

of its lo" savings rate* the United States borrows to finance the federal budget deficit and its ca%ital needs in order to enFoy healthy econo$ic growth. It therefore depends on countries "ith high savings rates* such as #hina* to invest so e of its capital in the
United States.

#hinese debt conversion "ould be eaningless the govern ent controls interests rates "hich prevent ar!et collapses and it only a!es the ore co petitive 2rug an* 1? J 6rofessor of econo$ics and international affairs at 6rinceton Uni4ersity,
for$er %rofessor at "ale Uni4ersity, Stanford, and 8I!, 6h.>. fro$ 8I!, colu$nist for the New "or# !i$es, (6aul, !a#ing <n China , N" !i$es, 8arch *B, ()*), htt%&''www.nyti$es.co$'()*)')='*B'o%inion'*B#rug$an.ht$l0''G5ahn !ensions are rising o4er Chinese econo$ic %olicy, and rightly so& China3s %olicy of #ee%ing its currency, the ren$inbi, under4alued has beco$e a significant drag on global econo$ic reco4ery. So$ething $ust be done. !o gi4e you a sense of the %roble$& 2ides%read co$%laints that China was $ani%ulating its currency 1 selling ren$inbi and buying foreign currencies, so as to #ee%

the ren$inbi wea# and China3s e9%orts artificially co$%etiti4e 1 began around ())=. At that %oint China was adding about A*) billion a $onth to its reser4es, and in ())= it ran an o4erall sur%lus on its current account 1 a broad $easure of the trade balance 1 of A+H billion. !oday, China is adding $ore than A=) billion a $onth to its A(.+ trillion hoard of reser4es. !he International 8onetary @und e9%ects China to ha4e a ()*) current sur%lus of $ore than A+B) billion 1 *) ti$es the ())= figure. !his is the $ost distortionary e9change rate %olicy any $aFor nation has e4er followed. And it3s a %olicy that seriously da$ages the rest of the world. 8ost of the world3s large econo$ies are stuc# in a li;uidity tra% 1 dee%ly de%ressed, but unable to generate a reco4ery by cutting interest rates because the rele4ant rates are already near Dero. China, by engineering an unwarranted trade sur%lus, is in effect i$%osing an anti-sti$ulus on these econo$ies, which they can3t offset. So how should we res%ond. @irst of all, the U.S. !reasury >e%art$ent $ust sto% fudging and obfuscating. !wice a year, by law, !reasury $ust issue a re%ort identifying nations that $ani%ulate the rate of e9change between their currency and the United States dollar for %ur%oses of %re4enting effecti4e balance of %ay$ents adFust$ents or gaining unfair co$%etiti4e ad4antage in international trade. !he law3s intent is clear& the re%ort should be a factual deter$ination, not a %olicy state$ent. In %ractice, howe4er, !reasury has been both unwilling to ta#e action on the ren$inbi and unwilling to do what the law re;uires, na$ely e9%lain to Congress why it isn3t ta#ing action. Instead, it has s%ent the %ast si9 or se4en years %retending not to see the ob4ious. 2ill the ne9t re%ort, due A%ril *B, continue this tradition. Stay tuned. If !reasury does find Chinese currency $ani%ulation, then what. Iere, we ha4e to get %ast a co$$on $isunderstanding& the 4iew that the Chinese ha4e us o4er a barrel, because we don3t dare %ro4o#e China into du$%ing its dollar assets. Fhat you have to as! is* Fhat "ould happen if #hina tried to sell a large share of its U.S. assetsE Fould interest rates soarE Short-ter U.S. interest rates "ouldn/t change J they/re being !ept near )ero by the Led* "hich "on/t raise rates until the une ploy ent rate co es do"n. :ong-ter$ rates $ight rise slightly, but they3re $ainly deter$ined by $ar#et e9%ectations of future short-ter$ rates. 9lso* the Led could offset any interestrate i pact of a #hinese pullbac! by e+panding its o"n purchases of long-ter bonds. It3s true that if China du$%ed its U.S. assets the 4alue of the dollar would fall against other $aFor currencies, such as the euro. ;ut that "ould be a good thing for the United States* since it "ould a!e our goods ore co petitive and reduce our trade deficit. <n the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short* right no" 9 erica has #hina over a barrel* not the other "ay around. So "e have no reason to fear #hina. But what should we do. So$e still argue that we $ust reason gently with China, not confront it. But we34e been reasoning with China for years, as its sur%lus ballooned, and gotten nowhere& on Sunday 2en Giabao, the Chinese %ri$e $inister, declared 1 absurdly 1 that his nation3s currency is not under4alued. (!he 6eterson Institute for International ?cono$ics esti$ates that the ren$inbi is under4alued by between () and +) %ercent.0 And 8r. 2en accused other nations of doing what China actually does, see#ing to wea#en their currencies Fust for the %ur%oses of increasing their own e9%orts. But if sweet reason won3t wor#, what3s the alternati4e. In *LE* the United States dealt with a si$ilar but $uch less se4ere %roble$ of foreign under4aluation by i$%osing a te$%orary *) %ercent surcharge on i$%orts, which was re$o4ed a few $onths later after 7er$any, Ga%an and other nations raised the dollar 4alue of their currencies. At this %oint, it3s hard to see China changing its %olicies unless faced with the threat of si$ilar action 1 e9ce%t that this ti$e the

surcharge would ha4e to be $uch larger, say (B %ercent. I don3t %ro%ose this turn to %olicy hardball lightly. But Chinese currency %olicy is adding $aterially to the world3s econo$ic %roble$s at a ti$e when those %roble$s are already 4ery se4ere. It3s ti$e to ta#e a stand.

at debt nb
6ebt Reduction easures fail- spending is !ey 2itro ilides /11 J 6h> in ?cono$ics, ?cono$ic Research <fficer at the Co$$onwealth
Secretariat, taught at the Uni4ersity of 7reenwich, 6rinci%al :ecturer in ?cono$ics and head of the ?cono$ics >i4ision, ("iannis, >eficit reduction, the age of austerity and the %arado9 of insol4ency , ()**, U8ich :ibrary, htt%&''www.$eta%ress.co$.%ro9y.lib.u$ich.edu'content'uE=)HH*EB(B)#=(*'fullte9t.%df0 -he =uropean debt crisis in 2?1? resulted in the adoption of fiscal austerity easures in any =uropean econo ies* and produced de ands for the adoption of si ilar policies in the United States. !his %a%er e9a$ines "hether the i ple entation of i ediate fiscal austerity during a fragile econo ic recovery is 0ustified and "hether it is the best eans of achieving deficit reduction. -he %a%er %oints out that although the austerity strategy can lead to deficit reduction and prevent insolvency in the case of an indebted individual* this ay not necessarily be the outco e in the case of national indebtedness. -he proble is accentuated "hen austerity easures are replicated in any interdependent econo ies. -he parado+ is in general valid "hen it is assu ed that fiscal policy is effective and that fiscal ultipliers are positive* assu$%tions that the New Consensus 8acroecono$ics theoretical fra$ewor# that under%ins the austerity strategy, ina%%ro%riately, reFects. !he o4erall conclusion is that >synchroni)ed@ fiscal austerity cannot solve the proble of ballooning public debts that need to be tac!led in con0unction "ith atte pts to refor the international ban!ing and financial syste . Su%%ort for the >age of austerity@ strategy is based on three a0or argu ents. @irst, fiscal %olicy is ineffecti4e, there are no traditional 5eynesian $ulti%lier effects, and therefore fiscal sti$ulus or fiscal contraction has no $acroecono$ic effectsC second, current warti$e le4els of %ublic indebtedness are unsustainable, and they %ose a threat to econo$ic growth and %rice stabilityC and third, financial $ar#ets, li#e any lender, are an9ious and ner4ous about ballooning fiscal deficits. Because $ar#ets can suddenly lose their %atience with de4astating conse;uences for theborrowers, go4ern$ents with big deficits, li#e indi4iduals with big debts, $ust i$%le$ent austerity $easures now in order to con4ince the lenders that they are serious about dealing with their debt %roble$s. #ritics of the strategy ,uestion the validity of all three argu ents. #ontrary to the clai s of the 7#B* fiscal policy can be effective and fiscal ultipliers are generally positive C it is an un%ro4en assertion that there are uni4ersal, in ti$e and s%ace, thresholds of %ublic indebtedness that reduce, when e9ceeded, econo$ic growthC and finally, austerity easures that are appropriate in reducing individual indebtedness and preventing individual insolvency are not necessarily appropriate in dealing "ith proble s of national indebtedness. If fiscal %olicy is ineffecti4e and fiscal $ulti%liers are Dero, as clai$ed by the NC8 theoretical fra$ewor#, then the %arado9 of insol4ency is in4alid and fiscal austerity can, in fact, achie4e deficit reduction because there will be no net deflationary effect. @urther$ore, the austerity easures $ay e4en ha4e an e9%ansionary effect in the long run if o%ti$istic e9%ectations ins%ired by the $easures

sti$ulate %ri4ate-sector growth sufficiently to neutraliDe any deflationary effect of sa4age %ublic s%ending cuts. Iowe4er, after e9a$ining the rele4ant theoretical argu$ents and e4idence (Arestis, ())L0, we do not find this argu$ent plausible and it does not invalidate the general conclusion of this %a%er that a deficit reduction plan that is appropriate in the case of an individual debt ay not be appropriate in dealing "ith govern ent debt* especially "hen there is >synchroni)ed@ fiscal austerity. 2ith regard to the fear$ongering that the $ar#ets will react ad4ersely to the absence of i$$ediate and sa4age fiscal austerity, the $ar#ets the$sel4es a%%ear to be %ro4iding a different answer. At least in the case of 4reece* Ireland* Spain* and $ortugal* it appears that the ar!ets are not pacified by the i position of the >age of austerity because there are serious doubts "hether the >age of austerity@ "ill, in fact, achieve the intended outco e of rapid fiscal consolidation. -he proble of ballooning public debt is a long-ter proble re,uiring long-ter solutions. !he solution to the %roble$ should not be based on a short-ter reaction to $ar#et Fitters. It is, abo4e all, a %roble$ that is ine9tricably connected with the %roble$ of refor$ing the global ban#ing and financial syste$. !he two %roble$s need to be tac#led together not se%arately. In the battle to win %ublic ac;uiescence for the age of austerity, the analogy bet"een individual and national indebtedness , howe4er inappropriate and isleading, is indeed 4ery useful, %articularly when co$bined with scare-$ongering and $oraliDing about indebtedness& it hel%s to conceal the real obFecti4e of this austere doctrine, "hich is not deficit reduction but reduction of the public sector "hatever the cost in ter s of une ploy ent.

-he aff sti ulates the econo y better independently eans debt is also irrelevant Aohnson and 2"a!* ?' J Ronald A. 5urts 6rofessor of ?ntre%reneurshi% at the 8I!
Sloan School of 8anage$ent, AN>K associate %rofessor at the Uni4ersity of Conneticut School of :aw (Si$on and Ga$es, National >ebt for Beginners , N6R, ('+'())L, htt%&''www.n%r.org'te$%lates'story'story.%h%.storyId/LLL(E=+=0''G: It is accepted a ong virtually all econo ists that so e govern ent debt* so eti es* is a good thing. In a recession* ta+ revenues fall* and you need ore oney for social progra s such as une ploy ent insurance* so the govern ent should go into deficit. @iscal conser4ati4es, howe4er, would say that these deficits during hard ti$es should be balanced by sur%luses during good ti$es, so that o4er the long ter$ the go4ern$ent budget re$ains in balance. 2hile this si$%le notion is a%%ealing, there is no %articular reason it $ust be true. I$agine that the go4ern$ent has so$e a$ount of debt, say () %ercent of its gross do$estic %roduct, or 7>6, at the beginning of the year. Assu$e it retires none of the debt, but it does %ay off the interest on the debt, and its budget is e9actly balanced. !he ne9t year, debt will be less than () %ercent of 7>6, because 7>6 al$ost always goes u%. #learly the govern ent can sustain the sa e level of debt by running s all deficits forever* as long as 46$ is increasing* because 46$ is a close pro+y for the ta+ base. 9nd the higher your level of econo ic gro"th* the ore additional debt you can ta!e on each year. !here are so$e negati4e effects of go4ern$ent debt, to be sure. 7o4ern$ent bonds co$%ete with cor%orate bonds for in4estors[ $oney, which %ushes u% interest rates for e4eryone. And if the go4ern$ent is absorbing a larger %ro%ortion of the ca%ital

a4ailable, there is less for the %ri4ate sector. But debt is not necessarily all badC as with households and co$%anies, it de%ends on what you are doing with the $oney you borrow. @or e9a$%le, it can $a#e sense for you to borrow $oney to %ay for college or %rofessional school, because higher education increases your lifeti$e earning %otential. @or $any %eo%le, the increase in e9%ected earnings $ore than co$%ensates for the cost of the debt. !he sa$e logic e9%lains why co$%anies ta#e on debt. If you want to build a new factory for your faster-thanlight ho4ercraft, you don[t want to ha4e to wait () years until you[4e accu$ulated enough %rofits fro$ your sub-light ho4ercraft to %ay for itC you want to borrow the $oney now, build the factory, and use the gigantic %rofits fro$ the faster-than-light ho4ercraft to %ay bac# the debt.

6ebt is !ey to U.S. financial stability Bac6onald /11 J chair$an and C?< of AllianD :ife of North A$erica, (Robert 2&
Chair$an and C?< of AllianD :ife of North A$erica, one of best-#nown, fastest growing and $ost successful life insurance co$%anies, In >efense of the National >ebt , Guly =*st, ()**, htt%&''bob$aconbusiness.co$'.%/(=)=0 ?9hibiting acti4ity $ore frenetic than a nest of drugged-u% ants besieged by a %ac# of craDed anteaters, the Fashington politicos have created a phony financial crisis over the increase in our allo"able national debt. -heir ob0ective is to set the selves up as the heroic cavalry riding to our rescue in the nic! of ti e. As if that were not bad enough, li#e an infestation of te$%estuous ter$ites, the
Congressional delegation of !ea 6artiers is eating away at the 4ery nature of how our go4ern$ent has functioned for o4er ()) years. 7etting the @acts Straight -here

is a financial challenge facing 9 erica* but it is not nearly as perilous or co plicated to resolve as the politicians and their co-conspirators in the edia "ould have us believe. -he politicians in Fashington desperately "ant us to believe and fear a national debt as a scourge on the future of children. -he -ea $arty e bers* "ho e+hibit about as uch co on sense as ter ite do-do* "ant us to believe that any co pro ise in dealing "ith the debt is "orse than the debt itself. It is that sort of fanatical %osture that obscures the truth, which is this& -he financial crisis facing the country is not about debtI it is about the irresponsible "ay that debt has been incurred and is anaged. It was 8ichael 7ordon 7e##o >ouglas who fa$ously said in the $o4ie 2all Street,
7reed, for lac# of a better word is good_ 7reed is right_ 7reed wor#s_ 7reed clarifies, cuts through, and ca%tures the essence of the e4olutionary s%irit. In that sa$e s%irit it could be said that debt* for lac# of a better word, is

good. 6ebt "or!sN 6ebt is efficient. 6ebt captures the essence of the spirit of "hat can be and a!es the future ore accessible and better. 7reed itself is a natural sti$ulator and $oti4atorC it3s the e9cesses of greed that are bad. 6ebt itself is a natural ultiplier and tool to do better. !he 6olitical Argu$ent !he %oliticians J es%ecially the -ea $arty %u%%ets J si$%listically argue that we should not incur any additional debt and should %ay off what we owe, because all debt is bad. But, that is ignorantly "rong-headed. >ebt is not, in and of itself bad, it is the abuse of debt that is bad. !he reality is that because of responsible and efficient use of private and public debt* 9 erican fa ilies en0oy the highest standard of living in history. !he A$erican econo$y is the largest in the world, and A$erica has beco$e a world %ower. -hin! for a o ent "hat your fa ily/s living standard and life style "ould be if debt did not e+ist. 2hat ty%e of car would you be dri4ing if you had to pay cash for it. 2hat style of ho$e would your fa$ily be li4ing in if ortgages did not e9ist and you were re;uired to %ay cash. 2hat are the chances that your #ids could attend the 4ery best colleges if student loans were not a4ailable to hel% with tuition. Iow would your fa$ily be i$%acted if the car brea#s down or a new washing
$achine is needed, but they can3t be fi9ed or re%laced until there is enough $oney in the chec#ing account to %ay cash. If we were forced to go through life without access to credit (debt0 then our li4ing standard and life style would be significantly reduced. And

"hat is true for our personal econo

ies is true for our national econo

y. 9

strong* efficient and effective govern ent needs public debt to aintain its position of "orld leadership. @ast @orward to ()** Fhen it co es to our govern ent debt* it has been the constitutional responsibility of #ongress to regulate and protect the credibility of debt assu ed. @or $ost of our history, Congress has done a good Fob controlling the a%%ro%riateness
of debt assu$ed and raising re4enues to $eet its obligations. !hat is the reason why US go4ern$ent debt instru$ents ha4e, for o4er a century, been 4iewed as 4irtually ris# free. But recent

irresponsible actions of #ongress have created a significant ris! that the confidence in 9 erican debt "ill deteriorate. I n an effort to re$ain in %ower and %ander to the electorate, #ongress so e 1? years ago began to see! the benefits of debt* "ithout i ple enting parallel plans to repay for the . 9nd the fallout fro this failure of fiscal is anage ent has brought us to the very brin! of debt default. And if that ha%%ens, all of us will be negati4ely i$%acted in so$e way. !he road to this abys$al state has
been littered with $alfeasance and nonfeasance. <ur debt $anage$ent ca%abilities ha4e so deteriorated that now nearly half of our new debt is incurred si$%ly to stay current with %ay$ents on our old debt thereby creating a national debt Catch ((& If

"e don/t increase the debt li it "e "on/t be able to ta!e on ne" debt to pay the old debt and if "e default on the old debt* "e "on/t be able to raise ne" debt to !eep going. <b4iously, this is frustrating and it is what gi4es rise to $o4e$ents li#e the !ea 6arty, but their solution to %aralyDe go4ern$ent and reFect all debt will do $ore har$ than good . Fhat is needed to "or! out of this crisis is ore fiscal discipline going for"ard. -he general Republican plan to solve the proble by si ply reducing e+penses* "ithout any increase in revenues is only half the ans"er and "ill actually a!e the situation "orse. -he si plistic philosophy that any debt is bad will, if carried to its e9tre$e, does ore to da age the future of this country than the current unfunded debt. Fhat is needed is a funda ental approach "hich re,uires that if "e "ant to fund infrastructure* develop ne" sources of energy* provide health care for all citi)ens or fight a "ar* it is o!ay to do so "ith debt* so long as "e are "illing to identify* collect and allocate a defined strea of revenue to pay the debt. It is the "ay "e al"ays ran our govern ent and should do so again. 2e can3t reduce or ignore the current debt J which is basically unfunded J because the $oney has
already been s%ent. !o assure that the current debt will be $anageable and that the creditors re$ain confident in the full faith and credit of our go4ern$ent, additional re4enues will be needed. It $ay be %ainful but is necessary $edicine for %ast financial irres%onsibility. And the $oral of the story ` !here is a si$%le, %ro4en for$ula for fa$ilies and go4ern$ents to follow if debt

is

to be a tool for gro"th as opposed to an instru ent of destructionJ 6ebt is never assu ed unless there are identified resources available and a plan to repay it.

debt good
9 erican debt is good Logoros /11 J bachelor[s degree in econo$ics fro$ >u#e Uni4ersity, doctorate in $edicine
fro$ <hio State Uni4ersity, (Richard, Is @ederal >ebt Necessarily bad. , !he Co4ert Rationing Blog, +'*,'**, htt%&''co4ertrationingblog.co$'econo$ics-and-that'is-federal-debt-necessarilybad0 Clearly, not all national debt is bad. So$eti$es, Fust as 6resident <ba$a insists, ac;uiring debt can be an invest ent in the future. In fact, Ia$ilton3s great insight was that national debt can be the engine of econo ic gro"th. Fhen the govern ent borro"s oney to build out the national infrastructure , to %ro4ide easier access to $ar#ets, to %ro4ide easier trans%ortation of goods, to %ro4ide easier access to energy, and to %ro4ide a stronger $ilitary to guarantee that its in4est$ents are safe, the govern ent is doing "hat businesses do "hen they "ant to gro". It is borro"ing oney today that "ill generate econo ic gro"th* and that "ill* in turn* repay that borro"ed oney "ith interest. -hat/s good debt. 2hen Ia$ilton bailed out the 4arious states and the %ri4ate in4estors, he was essentially buying u% war debt. Ie was ta#ing u%on the federal go4ern$ent the res%onsibility for %aying for the war that had created the United States in the first %lace. In econo$ic ter$s the Re4olutionary 2ar was li#e the high-ris# start-u% that e9hausts its funding in creating its %roduct. 2hile the %roduct of their effort (i.e. inde%endence0 was intrinsically 4ery 4aluable, the 4arious states had ban#ru%ted the$sel4es in achie4ing it. And because the states were ban#ru%t, co$$erce was %aralyDed, and the new country was about to brea# u% into warring factions. Ia$ilton saw that by creating a central entity to buy u% the debt, and to raise ca%ital against the country3s new inde%endence, he could realiDe the intrinsic 4alue of the new nation. Ia$ilton3s debt, because it was truly a catalyst to %ent-u% econo$ic %otential, was good debt. It truly was an in4est$ent in the nation3s future, one that %aid off for future generations of A$ericans beyond e4en his wildest drea$s.

U.S. debt is necessary to rebuild 9 erica 2ohn /11 J senior staff writer for U.S.A. today, (Sally, >on3t belie4e the Iy%e about U.S.
debt , USA !oday, B'(+'**, htt%&''www.usatoday.co$'news'o%inion'foru$'()**-)B-(+->ontbelie4e-national-debt-hy%eRn.ht$0 After all, what $a#es a co$%any li#e IB8 successful isn[t Fust that it $a#es $oney each ;uarter and has high stoc# 4alues in the short ter$. I;B is successful in the long ter as "ell because it invests in future business o%%ortunities 1 borro"ing oney to develop ne" areas of practice that ulti ately gro" the co pany* earn ore profit and pay those loans bac!. Si ilarly, es%ecially no" that govern ent revenues are historically lo" because of ta9 cuts as well as a sluggish econo$y, the United States ust borro" oney to invest in future opportunity for the nation as a "hole . #onsider the after$ath of the 4reat 6epression* "hen the U.S. invested in the federal high"ay syste that not only created 0obs in the short ter but also literally paved the "ay for all !inds of business gro"th and entrepreneurship across 9 erica . Si$ilarly, %ublic in4est$ents in education created a generation of s$all-business owners, Silicon Malley

inno4ators and, yes, Na4y S?A:s. Industries such as aeros%ace, co$%uting and biotech would not e9ist today were it not for our substantial go4ern$ent in4est$ents in the %ast. !oday, our govern ent needs to borro" oney to send the ne+t generation of scientists to college* to invest in green technologies that will sol4e our energy %roble$s in the co$ing years, and to ready our nation%s infrastructure for the ne+t great 9 erican invention that "ill captivate the global ar!et.