Unwanted Company: Foreign Investment in American Industries (review)

Jonathan Crystal is a political scientist. His book covers the reactions of U.S. business to the arrival of key foreign multinational enterprises in the United States from the late 1970s to the early 1990s. Crystal focuses on selected sectors affected by incoming foreign direct investment (IFDI): consumer electronics and steel, semi-conductors and cars, machine tools and bearings, airlines and telecommunication services. He chose manufacturing sectors that had been subject to "severe import competition from overseas and in which foreign penetration of the U.S. market had already [before the rush of IFDI] become a political issue"(p. 10). The sectors included only ones where the IFDI undermined the trade protection (that is, the foreign investor jumped over the barriers and invested within the United States). There is one chapter on services where, by the 1970s, IFDI was already strictly regulated. Crystal is convinced of a "disjuncture between trade and IFDI policy preferences" of U.S. firms as they met foreign competition (p. 10). U.S. business responses to the IFDI varied across and within sectors, shifting in some cases over time. Crystal believes that the contrast between trade policies that advocated protectionism and the more ambiguous policy preferences by American firms vis-a-vis IFDI requires explanation. In all the manufacturing sectors, IFDI served to dilute U.S. trade policy. Yet, IFDI never became as vital an issue for domestic companies as import competition.

In chapter 2 Crystal sets out his plan. Later, he skillfully applies concepts developed in this chapter. Crystal puts forth three hypotheses on how in the context of trade policies U.S. firms could be expected to react to IFDI. In the process of doing this, his book provides a fine introduction to theories of political scientists on trade and investment policies. Then he presents a general political context for IFDI, arguing U.S. firms in responding to IFDI "will tailor demands to match the specific rules and stipulations embodied" in existing policy norms (p. 28). He found it was far more common for U.S. firms to be affected by rather than to affect overall U.S. policies toward IFDI.

Chapters 3 through 6 cover the individual sectors. The first of these chapters turns specifically to consumer electronics (principally TVs) and steel, two industries "devastated by import competition" (p. 34). When Japanese companies began investing in U.S. TV manufacture, often American firms thought the newcomers would have no competitive advantage. Thus, U.S. companies did not fear the new arrivals; moreover, many U.S. businesses were outsourcing abroad, and for them it seemed inconsistent to voice objections to the IFDI. Yet, one U.S. company (while it remained "domestic"), Zenith, did support IFDI restrictions; Crystal explains why. In steel, where protests against imports were intense, U.S. producers "were falling over each other" to attract IFDI (p. 50).

The case of semiconductors was entirely different. Crystal shows the inconsistencies in domestic firms' policy preferences. He is splendid in discussing the role of Sematech, national security, and economic security. As for automobiles, the story of U.S. car companies' confusion over the IFDI of Japanese producers when told through the trade/IFDI lens casts new light on events as well as on the policy preferences of U.S. firms during the 1980s and early 1990s. National security concerns proved a potent tool in U.S. firms' gaining protection against machine tool and bearing imports; these concerns did not, however, aid American producers when the latter faced competition from foreign firms' producing in the United States. Airlines and telecommunications posed a separate set of policy considerations for domestic companies and a very different political (regulatory) environment.

It is remarkable how different were corporate responses within individual industries, as well as how different the sectors were. Crystal shows that despite "unwanted company" in the U.S. market no significant new anti-IFDI laws or regulations emerged in these years of large-scale investment. The...