Taking Antitrust Seriously Means Exposing Foreign Investments | Opinion

$4.5 trillion. That was the amount of foreign direct investment in the U.S. at the end of 2019, more than double what it was two decades ago. That's a lot of foreign money swirling around in the U.S. economy.

Here's one example: The Chinese government dedicates 3 percent of its GDP to corporate subsidies, enabling companies to price goods below market and still remain in business, often through state-owned enterprises (SOEs). These government subsidies are then used to acquire U.S. assets, including those with strategic and emerging technologies that are seen as priorities by the Chinese government.

Now, it's true that investment capital drives job creation and innovation. But it's critical the U.S. government pay attention to how this money is used. And it's especially important to take care and pay attention when it comes to antitrust. Because all the job creation can't compensate for what happens when competition is being squashed by monopolies. And this is especially true when it comes to foreign investment.

Like privately-owned companies, firms controlled by foreign governments can have the incentives and abilities to engage in anticompetitive conduct. They can also be deployed by the nations that own or control them to achieve ends not dictated by the normal incentives that companies face. That is, they may not be profit-maximizing.

State-owned entities, for example, often are government tools for implementing industrial policies or to protect national security. Other nations can be seen protecting "national champions" at home from foreign competition and promoting them abroad by pumping dollars and resources into them.

The point is this: Foreign-controlled firms may not compete like other firms. That is a problem for antitrust.

The profit maximization assumption that U.S. antitrust enforcers attribute to firms is a function of free market principles. But what we're arguing is that this assumption and those principles may not hold true for firms controlled or subsidized by foreign governments. And our antitrust regulators need to understand better how foreign ownership or financial support might impact a firm's incentives.

BEIJING, CHINA - JUNE 28: Chinese President and Chairman of the Communist Party Xi Jinping appears on a large screen as performers dance during a mass gala marking the 100th anniversary of the Communist Party on June 28, 2021 at the Olympic Bird's Nest stadium in Beijing, China. Kevin Frayer/Getty Images

When considering mergers or other conduct involving companies subsidized by a foreign government, antitrust agencies must follow the money to understand the motivations of those firms and incorporate that assessment into their enforcement decisions.

Antitrust enforcers need to understand the competitive dynamics of the markets they investigate. To determine how companies in front of them are likely to behave, enforcers make evidence-based guesses about their incentives. In a merger investigation, for example, they delve into the ownership structures of merging parties to determine competitive overlaps. Answering who "owns" or "controls" a firm is relevant to assessing whether common ownership—simultaneous ownership of stock in competing companies—might harm competition.

Information about control or financial support by a foreign government can be highly relevant to this analysis.

Identifying those firms is an excellent first step. Faced with a transaction or conduct involving such a company, U.S. antitrust enforcers may need to consult with the government authorities charged with protecting national security to determine whether the assumptions they are applying are correct. We should formalize this interagency information flow, so that national security agencies can and do flag foreign companies that compete differently.

Cooperation and coordination with national security experts is nothing new for antitrust enforcers. The Federal Trade Commission has worked closely with the Defense Department for decades on mergers that implicate national security. Antitrust enforcers may need to grapple with such concerns more frequently as foreign-controlled firms expand in their prominence. As state control over and support for the activities of foreign firms in the U.S. becomes more relevant, getting this right will become even more important.

Last year, we took a step in the right direction. The U.S.-China Economic and Security Review Commission, a bipartisan panel of experts chartered by Congress, recommended that Congress require companies to disclose to the antitrust agencies (the Federal Trade Commission and the Antitrust Division of the Department of Justice), as part of pre-merger notification, information about any financial support or subsidies provided by a foreign government.

The idea behind the recommendation is sound. We need more like it.

Congressman Scott Fitzgerald represents Wisconsin's 5th congressional district. Noah Joshua Phillips is Commissioner of the Federal Trade Commission.

The views in this article are the writers' own.