Whatever you think of the corporate tax inversion thing, Jared Bernstein’s recent Washington Post item on the subject contained a valuable reminder of (a) the importance of sovereignty in international economic policy, and (b) the imperative of the United States using its own national power much more unabashedly and effectively in this sphere.
Jared, a prominent labor specialist who used to be Vice President Biden’s chief economist, noted that one possible under-appreciated reason for Burger King’s plan to move its corporate headquarters across the border when it acquires Canadian donut and coffee chain Tim Hortons has nothing to do with capitalizing on Canada’s lower corporate tax rate. Instead, it has to do with Canada’s approach to all foreign direct investment.
A New York Times observation he spotlights explains why: The Investment Canada Act “allows the national government to block a merger if it is deemed to not be in the best interests of the country … Given Tim Hortons’ status as one of the country’s iconic restaurants, a merger structure would allow it to remain Canadian.”
Granted, portraying a fast-food chain as a national treasure whose takeover by a foreign firm rises to the level of a national policy issue is dubious, to say the least. But here’s the main point: As a sovereign country, and especially as a democratically governed one, Canada has every right to handle incoming foreign investment however it chooses, and every right to attach whatever value to Tim Hortons it wishes.
At least as important: Canada – and the U.S. government – need to recognize that America has the exact same right. Which means, for example, that the next time the Canadian government goes ape over Washington’s approval of a Buy American rule that would discriminate against Canadian-made goods and service, as it keeps doing, here’s how U.S. leaders should respond: Far from being a detestable act of “protectionism,” these measures simply represent a case of the democratically elected American government acting “in the best interests of the country” – just as you do.
Similarly, if Canada doesn’t like America’s decisions, it can choose not to do less business with its northern neighbor – or no business at all. And Washington can take similar retaliatory steps. Any doubts about which country would prevail in this particular confrontation, and how cross-border economic policies and regimes would evolve as a result? If so, you’re as clueless as generations of U.S. leaders have been about the real recipe for much better results in global economic competition – and about how vital it is to build and maintain the national economic power that’s its foundation.