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Manufacturing is still critical to the economy United States. Clyde Prestowitz, says it's time to start realizing the positive spillovers that manufacturing creates... Read more  

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Stephen Olson at Chinese Development Institute Conference


 Clyde Prestowitz giving presentation to CDI...


Steve Olson teaching trade negotiations at the Mekong Institute...


Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

(07/25/05) Clyde Prestowitz quoted in The Globe and Mail

(07/25/05) Clyde Prestowitz quoted in The Globe and Mail
Copyright (c) 2005 by The Globe and Mail
Reuter International
Monday, July 25, 2005

By Steve Lohr
New York Times Service
The Unocal bid:  A tempest in  a Chinese teapot

CNOOC's bid for the American oil firm has shown how deep U.S. anxieties run

William Reinsch, an avowed free trader, welcomes China's rising stature in the international economy. After all, he is the president of the National Foreign Trade Council, an organization founded in 1914 to promote an 'open world trading system.'

Indeed, when he was a senior trade official in the Clinton administration, Mr. Reinsch was chided by some security analysts who said he was being soft on China by placing matters of commerce ahead of national security.

But even Mr. Reinsch is uneasy about China's attempt to buy Unocal Corp. , a mid-size American oil company. The outcome of the takeover contest for Unocal is uncertain, and last week its board embraced an improved offer from Chevron Corp.  Yet China National Offshore Oil Corp.  (CNOOC), a government-backed Chinese oil company, still has the higher offer -- and it could up the ante.

If the Chinese bid proceeds, Mr. Reinsch wants to see a thorough national security review of the deal, one that goes beyond the usual focus on weapons technology to include energy security. 'Our Army, Navy and Air Force run on oil,' he explained.

Oil is the ultimate geopolitical commodity. It is The Prize , as Daniel Yergin titled his epic history of petroleum and international politics. And even if CNOOC fails to grab Unocal, the pursuit has pushed the two sides of the Chinese challenge together and into the spotlight of public debate. For China is both an engine of economic globalization and an emerging military power. In symbolic shorthand, it is Wal-Mart with an army.

The two sides aren't neatly divided. But those who focus on economics tend to see partnership, co-operation and reasons for optimism, while security experts are more pessimistic and anticipate strategic conflict.

In China, there are also two camps: the security hawks and the economic modernists, China analysts say. The modernists see China joining the United States as the second great economic power of the 21st century, and the two nations sharing the gains from increased trade ties and global growth. The hawks regard that view as naive, and fret that American policy is to remain the world's only superpower and to curb China's rise.

Both faces of China have been evident recently. Two weeks ago, a senior Chinese military official said China should use nuclear weapons against the United States if the American military intervened in any conflict over Taiwan. Then, bowing to pressure from the United States and other trading partners, China announced on Thursday that it would no longer peg its currency tightly to the dollar. It is a measured step, and it will not do much to moderate China's huge trade surplus with the United States any time soon. But the move is a sign of flexibility and accommodation.

'Do we see each other inevitably as antagonists, or do we see a world of globalization from which both sides benefit? That is the big issue,' said Kenneth Lieberthal, a senior official in the U.S. National Security Council in the Clinton administration. 'And that framework, one way or another,' added Mr. Lieberthal, a China analyst and a professor at the University of Michigan business school, 'will drive an enormous number of policy decisions.'

So that is the China question: Is it an opportunity or a threat? If nothing else, the CNOOC bid for Unocal has shown how unsettled American thinking is on China and how deep the anxieties run, both in matters of national security and trade.

The scope of the outcry in the U.S. Congress is significant. Resolutions and legislative proposals, all critical of CNOOC's takeover bid, have piled up in the House and Senate, from Republicans and Democrats. A resolution presented last month by Richard Pombo, a Republican representative from California, declared that permitting the Chinese company to buy Unocal would 'threaten to impair the national security of the United States.' It passed, 398 to 15.

Democratic Senator Byron Dorgan of North Dakota has drafted three pieces of anti-CNOOC legislation that range from calling for a six-month congressional inquiry into the bid to a bill that would prohibit the deal. Mr. Dorgan objects to the Chinese move on fair trade grounds. The Chinese government, he says, would not allow an American company to buy a Chinese oil company. 'So why on earth should they be able to buy an American oil company?' Mr. Dorgan said.

Yet the Chinese takeover bid taps into a deeper concern about trade and globalization for Mr. Dorgan. He talks of manufacturing jobs lost to China, intellectual property pirates in China copying American movies and software, and a trade deficit with China that is rising astronomically with no end in sight.

The tempest in Congress has increased the political risks surrounding the CNOOC bid. At $18.5-billion (U.S.), the bid remains higher than Chevron's sweetened offer of $17-billion. But Wall Street analysts say CNOOC will have to go higher, offering a sizable premium over the Chevron bid to compensate for delays of a government review of the Chinese offer or even the possibility that Washington may block a Chinese deal.

It would be an extreme step, but Congress has the power to 'regulate commerce with foreign nations,' under article 1, section 8 of the U.S. Constitution. 'My sense is that Congress is not going to stand still for a CNOOC takeover,' said C. Richard D'Amato, chairman of the United States-China Economic and Security Review Commission. 'That is the political reality.'

Many economists and trade specialists contend that the American anxiety over the CNOOC bid says more about the United States than it does about China or CNOOC's tactics. 'All this really points to the anxieties about globalization in our own society,' said Clyde Prestowitz, a trade official in the Reagan administration and president of the Economic Strategy Institute in Washington. 'We are so economically interdependent with China now and we chose that path.'

Washington pushed for China's integration into the international economy and its entry into the World Trade Organization in 2001. American companies have farmed out much of their manufacturing to Chinese factories. American consumers have been on a Chinese shopping spree for years. That is why the United States had a record $162-billion trade deficit with China last year. China sits on $700-billion in foreign exchange reserves, mostly in dollars. It recycles those funds in good part by investing in U.S. Treasury bonds.

'We handed China the money they are using to try to buy Unocal,' said Mr. Prestowitz, author of a book on the shift of wealth and power to Asia, Three Billion New Capitalists . 'And now we're telling the Chinese, please keep investing in our bonds but you can't invest what amounts to a sliver of their surplus in an oil company. That's really confused and hypocritical on our part.'

The CNOOC move, said Frank Gaffney, a senior Defence Department official in the Reagan administration, is a step to ensure that China has the resources for its overarching national design. 'China's strategy is to supplant the United States as the premier economic power in the world and, should it become necessary, defeat us militarily,' said Mr. Gaffney, president of the Center for Security Policy.

The strategic concern was much narrower at William Blair & Co. Until recently, William Blair, the investment firm in Chicago, was the largest outside shareholder in CNOOC, which is majority owned by the Chinese government. But William Blair sold off its stake, worth about $160-million, in recent weeks because of worries that CNOOC was behaving too much like a state-owned company and not enough like a capitalist enterprise trying to maximize returns to shareholders, explained David Merjan, a fund manager at the firm.

'If China is going to sell shares in a company like CNOOC to outside shareholders, it should not be run for the benefit of Chinese economic policy,' Mr. Merjan said.

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