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CNN/Money story on gold quotes GATA consultant James Turk
By Edmund L. Andrews
The New York Times
Friday, June 24, 2005
http://www.nytimes.com/2005/06/24/business/worldbusiness/24trade.html
WASHINGTON, June 23 -- For the Bush administration and even for many
members of Congress, China has become almost too big to bash.
A day after one of China's state-controlled oil companies made an
unsolicited $18.5 billion bid for Unocal, a California oil and gas
company with extensive fields in Asia, administration officials and
many lawmakers were almost tongue-tied about the implications.
Treasury Secretary John W. Snow, asked whether he would lead a
national security review of the deal, hesitantly told members of the
Senate Finance Committee that the question was "hypothetical"
because the transaction has yet to happen.
Alan Greenspan, chairman of the Federal Reserve, said virtually
nothing about the deal. But he used some of his bluntest language
ever to warn lawmakers against imposing tariffs on China as a way to
pressure it over its exchange rate policies.
For months, many lawmakers in both parties have become almost
frantic about China's soaring trade surplus and its impact on
American manufacturers. Anxiety is so high that Republican lawmakers
from industrial states like Ohio and Pennsylvania are loath to vote
for anything that sounds like a free-trade agreement.
But anxiety is at least as great about a disruption of American
business ties to China.
"I think there is a reluctance to confront China," said Rep. Phil
English, a Republican from Pennsylvania and the leader of the
congressional steel caucus. "The problem is that many companies are
depending on Chinese inputs and on imported goods to sell at
retailers."
China is also a leading creditor of the United States; it acquired
more than $200 billion of Treasury securities over the last year.
Moreover, China is already home to a growing number of American-
owned factories, many of them exporting to the United States, and a
large number of factories that are suppliers to American companies.
For the last two years, the Bush administration has struggled to
balance competing economic goals. It wants to persuade China to let
its currency rise in value, which would make Chinese imports more
expensive in dollar terms, even as it works to fend off proposals
from Congress to impose high tariffs if China refuses to change its
policies.
On Thursday, Mr. Snow argued that it would be dangerous to
impose "punitive" actions on China. Not only would it be a mistake
to threaten China with tariffs if it refuses to let its currency
float, he said, but it would also be a mistake to subject China to
countervailing duties in cases where it illegally subsidizes exports.
"Acting on any of the punitive legislative proposals before Congress
now would be counterproductive," Mr. Snow told lawmakers.
Mr. Greenspan, testifying at the same hearing, said it was a major
mistake to think that American jobs would be increased even if China
did change its currency policies.
"I am aware of no credible evidence that supports such a
conclusion," Mr. Greenspan said. Tariffs on Chinese imports would
protect "few, if any American jobs," he continued, and
would "materially lower our standard of living."
But the political debate about China is lagging behind events on the
ground. The $18 billion bid for Unocal by the China National
Offshore Oil Corp. (CNOOC), China's third-largest oil company, was
merely the latest and by far the biggest move by a Chinese company
to buy a formidable American company.
The move represents an evolution for China from being a major
exporter, using its earnings to acquire Treasury securities, to
becoming a significant foreign investor in hard assets as well.
Administration officials made it clear Thursday that a deal with
Unocal would almost certainly be subjected to an interagency review
over its implications for national security.
But Mr. Snow was extremely hesitant when asked about it by Sen. Ron
Wyden, Democrat of Oregon.
"It's hypothetical at this point, because we don't have a
transaction," Mr. Snow said, adding that a foreign company taking
over a company in a potentially sensitive industry would normally
ask for such a review itself. Indeed, CNOOC did just that Thursday,
even before it was clear whether Unocal would accept the offer over
its standing deal with Chevron.
The diffidence of Mr. Snow startled Mr. Wyden, who has supported the
administration on many trade issues. "I'm a free trader, but being a
free trader isn't synonymous with being a chump," Mr. Wyden remarked
after the hearing. "He should have said, 'You bet we're going to
take a look at it.'"
Gary C. Hufbauer, a trade expert at the Institute for International
Economics, said the administration wanted to keep the issues
involving China as separate as possible, from its currency policy to
its surging textile exports to its enforcement of American patent
and copyrights.
"What the administration wants to do is avoid putting all these
issues together into what some would want to call a
single 'coherent' China policy,'" he said. "A 'coherent' policy
would probably be one that sees China as an emerging adversary."
Lawmakers are demanding a comprehensive approach to China.
"China's competitive challenge makes Americans nervous from Wall
Street to Main Street," said Sen. Max Baucus, Democrat of
Montana. "What is the administration's plan? They have none."
Sen. Jim Bunning, Republican of Kentucky, complained that the
administration had made little progress in prodding China over its
trade and currency policies. "They've kind of told us to take a
hike," Mr. Bunning said.
Mr. Snow responded, as he did several other times during the
hearing, that "we're not satisfied, and we want them to know that."
Despite the frustration among lawmakers, most avoided any criticism
of the attempt by CNOOC to buy a major American oil company.
Administration officials noted that China remains a minuscule direct
investor in the United States, far smaller than the tiny European
nation of Luxembourg. As a general matter, American officials have
encouraged foreign companies to invest in the United States and
refrained from interfering in all but a handful of cases.
But critics of China hinted they might use the bid for Unocal as a
way to pressure China on other issues.
"Does anybody honestly believe that the Chinese would ever let an
American company take over a Chinese company?" asked Sen. Charles B.
Schumer, Democrat of New York and sponsor of a bill that would
impose a tariff of 27.5 percent on China's imports if it fails to
change its currency policy.
Other lawmakers stressed caution. "We must be thoughtful in our
actions and get it right," said Sen. Charles E. Grassley, Republican
of Iowa and chairman of the Finance Committee. "We can't afford to
act rashly, and get it wrong."
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----------------------------------------------------
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----------------------------------------------------
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