Will port flap deter foreign investors?

"Arab investors not welcome." That's the message some business leaders worry Congress is sending with its outrage over the plans of a Dubai-based company to operate several major US ports.

And the storm over port operations could have wider financial ripples, some experts say, if Congress passes legislation that politicizes the way future deals involving foreign businesses are reviewed.

The danger: that overseas money gets scared away from US shores. The result could be fewer jobs created in America through foreign investment, and perhaps new difficulty financing the nation's massive trade deficit.

Call it the other side of the ports debate. Although the battle has understandably centered around national security - how best to guard vulnerable ports from terrorist threats - the debate also touches, inevitably, on simmering questions of economic security.

"Our concern is that this episode will send exactly the wrong signal not only to Arab investors but to investors around the world," says David Hamod, president of the National US-Arab Chamber of Commerce, which promotes business ties between the US and Arab nations.

The path to economic security, of course, is in the eye of the beholder. Not everyone sees unfettered free trade and investment as the best way forward for American workers or for sensitive industries such as defense.

Trade disputes with Beijing, for example, have prompted Congress to consider a flurry of bills on everything from China's intellectual-property rights to its currency valuation and Internet access.

The same government panel that initially reviewed the Dubai ports deal is now weighing another buyout with security implications: an Israeli software company's planned acquisition of a US company with expertise in guarding against hackers.

These are signs of the balancing act America must navigate on economic security. Where some policymakers call for new protections, others say the danger is a revival of protectionism.

In today's global economy, the US is intertwined with the rest of the world. Economists generally credit trade and the cross-border flow of capital as a factor, fueling faster growth in the US and other nations.

Moreover, an influx of foreign investment each year - from Arab nations as well as countries such as Britain and Japan - helps to create US jobs and to make up the balance-sheet difference between the amount of goods exported and imported. That gap, the so-called trade deficit, hit a record $726 billion last year.

The Dubai affair may pass by without having much effect on the flow of dollars, analysts say. But under some scenarios, the impact could widen. "It really depends where things go from here," says Edward Graham, a fellow at the Institute for International Economics in Washington. Some steps Congress is considering could have "a seriously chilling effect on foreign investment."

Currently, an interagency panel reviews planned foreign investments. Lawmakers are mulling over ways to revise the process, to ensure that security concerns get adequate focus. Mr. Graham says he would worry if Congress gave itself a new role, with the option to overturn particular deals. "That would mean that any foreign investment in the United States could be politicized," he says.

To critics of Congress, that is what has happened over the deal involving Dubai Ports World.

DP World is seeking to acquire Britain's Peninsular and Oriental Steam Navigation Co., which runs six US ports including New York, Miami, and New Orleans. Many antiterrorism experts see gaping holes in port security, but say the key issues don't depend on whether the port operators are foreign-owned. The Dubai deal now faces a 45-day review.

In light of national security concerns, however, House Republican leaders said Tuesday they plan to introduce legislation that would block the deal before the review is completed.

The controversy has put new attention not just on ports but on "petrodollars," the money petroleum-rich nations reap when oil prices rise.

While the ports deal involves the buyout of a company in Britain, not the US, Arab dollars are flowing back to the US to buy everything from hotels to sizable stakes in public and privately held US companies. And they are going into Treasury bonds. The demand for US debt helps keep long-term interest rates lower than they might otherwise be.

James Zogby, who heads the Arab American Institute in Washington, says investors in the Middle East are reassessing the climate for investment in the US.

"There's a kind of head-scratching going on" among the Arab business class, he says.

Still, US Treasury notes won't lose their cachet overnight. "They're still viewed as the safest, most liquid assets in the world," says Jay Bryson, a global economist at Wachovia Corp. in Charlotte, N.C.

It will take more than a port squabble, he says, to scare investors away.

Similarly, Roger Aguinaldo, who publishes The M&A Advisor, a newsletter on mergers and acquisitions, doesn't foresee a decline in deals between US and Arab corporations. "If you can make money at it," he says, "it'll happen."