No Way to Treat a Dragon - New York Times

No Way to Treat a Dragon - New York TimesAugust 4, 2005
No Way to Treat a Dragon

Facing crippling delays imposed by Congress, Cnooc, a state-controlled Chinese oil company, has now withdrawn its $18.5 billion bid for Unocal, conceding the prize to Chevron. That's a victory for Congressional China bashers, who continually blame China for economic woes that are largely of America's making. They successfully raised the specter of national security to justify their interference in the takeover contest.

But their victory is a loss for the United States' global interests, and it sets a dangerous precedent of dealing with China by demonizing the Chinese. That approach, in turn, risks turning China, an emerging superpower, into an aggressive opponent rather than simply a global competitor.

Losing Unocal, an oil company based in California, won't stop China from slaking its oil thirst somewhere else, any more than keeping the company under American ownership will quench ours. Unocal is small potatoes as oil companies go. But thwarting China may drive it even further in the direction of securing its energy from countries that really do pose a threat to America, like Iran, and from repressive regimes like the ones in Sudan and Myanmar. The United States would prefer that China cooperate with America's policy goals in such places, rather than striking oil deals that could strengthen the current rulers.

Denying China a shot at Unocal also invites retaliation. Analysts expect any blowback to be narrowly focused - for instance, an airplane order might be directed to Airbus, the European consortium, rather than to Boeing. But, of course, Boeing would not be likely to think that a lost sale was a legitimate price to pay for keeping Cnooc away from Unocal, and angry politicians from the affected region would probably demand action against China.

So the way has been paved for tit-for-tat retaliation. That could be a precursor to escalation, which, in turn, could be the catalyst for a serious economic clash. Congress has already spent the summer considering half a dozen proposals for across-the-board tariffs against Chinese imports. The Bush administration is also trying to forcibly stem the flow of Chinese textiles into the United States.

Because China and the United States are co-dependent - Americans buy the exports to keep the Chinese economy humming, and China buys Treasury debt to finance American deficits - it's generally assumed that government and business leaders in each country will always, in the end, act rationally to avoid self-destruction. But an ongoing policy of brinksmanship is itself irrational.

The Congressional hysteria over the Cnooc bid demonstrates that only too well. It is a sad example of self-interested pandering for votes and contributions - with little regard for the dangerous dynamic it could set in motion.