Why the US should welcome FDI from China

Heretical as it sounds, the next administration should seize such an opportunity.

- Vikram Khanna

A self-confessed "heretical prophecy" by the analyst Marko Papic landed in my e-mail inbox recently. Mr Papic is chief strategist at BCA Research, which produces analyses that are widely read by the investment community.

Its title: Trump Will Make A Deal With China. Its bottom line: Threats of US tariffs on China will ultimately induce China to start producing electric vehicles (EVs) and, maybe, several other products as well in the United States, using American workers and developing US supply chains.

This will not only create jobs, but also help revive the US manufacturing sector. It will also benefit China and help defuse the US-China trade war.

It's an intriguing thesis. In a couple of previous articles, I made a similar argument.

In a piece in April, titled US Needs China For Its EV Industry, I suggested that instead of complaining that Chinese overcapacity in EVs is threatening their car industries, the Americans and Europeans should encourage Chinese EV makers to produce their cars in the US and the European Union, using local workers and expanding the use of domestic suppliers.

Then, in June, I suggested that the imposition of moderate provisional tariffs by the EU on China would incentivise Chinese carmakers to produce EVs in Europe, which could result in a win-win outcome for both China and the EU.

In both pieces, I cited the precedent of Japanese carmakers, which after a period of practising "voluntary export restraints" in the early 1980s, in response to US complaints about a flood of Japanese car imports, decided to start producing cars in the US – which benefited both the Japanese and US car industries. Mr Papic also recalls this history.