WorldCity Business Magazine

East meets West

by Jeffrey Sparshott

China National Offshore Oil Corp. (CNOOC) tried to outbid an American company for Unocal, a 115-year-old U.S. company that today is a major explorer and producer of natural gas and crude oil. The $18.5 billion offer may outdo Chevron and hand significant gas and oil fields in Asia and North America to a company controlled by China’s communist party.

The oil bid followed on the heels of an unrelated effort by Haier, an up-and-coming Chinese appliance manufacturer, to buy Maytag, a struggling company based in America’s heartland for $1.28 billion. And only a few months ago Chinese computer maker Lenovo purchased IBM’s personal computer business for $1.75 billion. Chinese companies have or will snatch up all or parts of other marquis brands in other countries.

Official Washington was already wary of China because of its growing might as an exporter. The CNOOC bid threw gas on the fire.

“China’s competitive challenge makes Americans nervous from Wall Street to Main Street. Americans are nervous about China’s effect on the American economy, on American jobs, and on the American way of life,” Senator Max Baucus, Montana Democrat, said at a June 23 Senate Finance hearing.

Baucus, usually a free trader and internationalist, expressed his concern more mildly than many of his colleagues. Other lawmakers have prepared a raft of legislation meant to punish China for unfair trade practices, real and perceived.

“Fighting back is not protectionism,” Senator Lindsey Graham, South Carolina Republican, told Federal Reserve Chairman Alan Greenspan and Treasury Secretary John Snow at the Senate hearing. “No more saberrattling. We want results.”

It is not certain what the result of some legislation would be. But a few bills are certainly popular, including one by Graham and Senator Charles Schumer, New York Democrat, that would raise 27.5 percent tariffs in front of any Chinese imports into the United States. The bill is meant to be a remedy to currency manipulation, a process wherebyChina undervalues its yuan to give its exports an unfair advantage.

Also high on the list of complaints are a $162 billion bilateral trade deficit (in 2004), intellectual property theft, dumping subsidized products on the U.S. market and dealing with rogue nations in an effort to secure global commodities, especially oil.

The Graham-Schumer bill is less draconian that it appears at first glance. It gives the president ample opportunity to waive the sanctions as long as China is making vaguely defined progress.

But the White House is not taking the protectionist wave lightly. The Bush administration, which has taken its own anti-China steps under severe Congressional pressure, in June trotted out its big guns to try and shoot down some of the latest concern. Greenspan and Snow warned that U.S. consumers would be hurt and almost no jobs would be saved with new trade barriers. “Few, if any, American jobs would be protected,” Greenspan said.

It is not clear if the Senate will listen. And some kind of China vote in both houses may be necessary as part of the larger strategic picture on trade. Because it seems that Congress, the House especially, has largely lost its appetite for measures opening the U.S. market to competition. That means that in order to win approval for the Central American Free Trade Agreement, China may have to be addressed though probably in a way that gives the administration significant flexibility.

What does it all mean?

“Heavy-handed threats from Congress and the White House are based on populist nonsense that, if enacted into law, would inflict real damage on American families,” said Dan Griswold, director of the Cato Institute’s Center for Trade Policy Studies, a libertarian think tank.

That’s one side of the argument. Another comes from Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business: “Pressuring China to change by imposing explicit costs when its actions harm others makes more sense to me,” said Mr. Morici. Anything less is appeasement, “and history has taught us hard lessons about that approach.”

Washington is still concocting its economic policy toward China, but this summer should make clearer whether the U.S. is engaging or confronting the new kid on the block.