China-Bashing for Beginners

He bought quite a lot of stuff at his favorite shopping mall over the weekend: cheap Chinese-made shirts (five), pants (three), suits (two), dresses (three), scarves, underwear and socks – and let's not forget those cheap Chinese-made toys for the grandchildren to whom he also sent e-mails through his personal computer, which was manufactured somewhere in Greater China.

Over dinner on Saturday night, he praised President George W. Bush's costly wars in Iraq and Afghanistan as well as his tax cuts and increase in domestic spending. Yes, defense spending will rise, and the budget deficit will expand, but there is no need to worry about current account deficits, a weakening U.S. dollar, or rising interest rates. The Chinese central bank will continue to buy U.S. Treasuries on the bond market, protecting the U.S. dollar and interest rates.

When he returned to his house in a suburb of Washington, D.C., he contemplated how the value of his mansion had tripled since he had purchased it 12 years ago. Some economic commentators have raised concerns over the popping of the U.S. housing bubble if the Chinese and other Asians start dumping their U.S. dollar reserves.

But he is not worried, since he knows that the Chinese and other Asians won't do that because they benefit from their large trade deficit with the United States. In fact, when it comes to that trade deficit, his son – who works for a company that invests in China – is one of the beneficiaries.

And so on Monday, after the long weekend in which he had become aware more than any time in the past of the rewards that he and his family – and most of the American people – are winning as a result of the growing ties between America and China, he returned to Capitol Hill. This is where he has been serving for more than 10 years as a lawmaker, representing a district in a state whose economy has grown as a result of increasing Chinese investment, he went on the floor of the House of Representatives, where he delivered a televised address in which he attacked China and warned Americans of the great threat that country is posing to U.S. economic and security interests.

"We have to wake up and start taking swift action against China before it's too late," he warned, as he specifically denounced the $18.5 billion bid from the China National Offshore Oil Company (CNOOC) for Unocal, the U.S. energy company. His son's company should be permitted to invest in China, of course; you can only imagine the bashing China would have taken from our lawmakers if that wasn't the case and be accused of violating free-trade principles. But when it comes to a Chinese company trying to do business in America, well, free-trade principles don't seem to apply anymore.

This U.S. lawmaker may be just a product of my wild imagination, but if you had spent a few hours last Wednesday watching the hearing of the Armed Services Committee on CNOOC's bid for Unocal, you would have no choice but to conclude that he represents the current anti-China sentiment that has been building for a while on Capitol Hill, reflecting security concerns, complaints of currency manipulation, and intellectual property theft, and representing a mix of economic nationalism, strident jingoism, and just a lot of good old hypocrisy.

Grand Strategic Plan

"There is so much heat in this hearing room, that perhaps we would now be able to resolve the energy crisis," commented one of the saner lawmakers after his colleagues, joined by a motley group of China-bashing "experts," accused China of a grand strategic plan to control the energy resources of the planet and use the "oil weapon" to destroy the U.S. economy and force the U.S. to surrender to Chinese demands on Taiwan and other issues.

Indeed, committee chairman Duncan Hunter, a hawkish Republican representative from California, made it clear he wanted CNOOC's proposal to be rejected on "national security" grounds.

It was not surprising, therefore, that most of the witnesses during the hearing, led by R. James Woolsey, former director of central intelligence, were promoting the same anti-China line and calling on the Bush administration to stop the takeover of Unocal by the Chinese company.

Woolsey, one of the leading neoconservative figures in Washington, argued that CNOOC's bid for Unocal should be seen as part of Beijing's strategy for energy security in competition with the U.S. CNOOC is nothing more than "an organ, effectively of the world's largest communist dictatorship," is the way Woolsey put it, and allowing it to buy Unocal "should be beyond the pale, given the nature of the Chinese government."

He didn't explain, however, why the central bank in Beijing should be permitted to finance the U.S. deficit – the economic security of the American democracy being taken hostage by the "world's largest communist regime" – and how American commitment to free trade would square with a move to block CNOOC from buying Unocal, even if that deal were to be approved by the shareholders.

In fact, Congressman Hunter is considering introducing legislation to block CNOOC from taking over Unocal even if the deal is approved by the government committee that reviews corporate takeovers by foreign enterprises.

The only voice of reason that was heard during last week's hearing was that of Jerry Taylor, director of natural resources studies at the Cato Institute, a pro-free-market think tank, who tried to challenge the notion that CNOOC's bid is part of Chinese policy to develop an "oil weapon."

Providing the lawmakers with an introductory session in Economics 101, Taylor explained that oil is a fungible commodity and that owning petroleum in the ground doesn't provide any nation with "energy security" from sudden changes in the oil and gas markets.

"Even if a Unocal-CNOOC transaction led to diversion of supply to China, it would have no net effect on the amount of oil available to buyers in the world market and thus zero impact on the price of crude oil in the United States or the availability of crude oil in the U.S.," Taylor stressed.

But the free-market argument was drowned in the nationalist and mercantilist rhetoric on Capitol Hill. Ironically, the lawmakers were exhibiting what psychologists describe as "psychological projection" (or projection bias) – that is, when one projects his or her own undesirable thoughts, feelings, desires, and motivations onto others. Instead of admitting that you don't like Bob, you project your dislike onto Bob. Hence, instead of "I don't like Bob," you tell yourself that "Bob doesn't like me."

Search for an "Oil Weapon"

In a way, American officials and lawmakers don't want to admit that it is the United States that is engaged now in a strategy aimed at controlling the oil resources of the Middle East, Central Asia, and the Caucasus, which would provide it with a leverage over other oil-importing countries, including China. But instead of admitting that, they are the ones searching for an "oil weapon" against the Chinese; they are accusing the Chinese of trying to gain control over oil resources in order to gain leverage over the Americans.

Apply the theory of projection and you'll be able to deconstruct Representative Hunter's following argument: Unocal is an investor in pipelines running through Azerbaijan, Georgia, and Turkey – "critical players and key U.S. allies" – and China's purchase of Unocal would therefore "dramatically increase its leverage over these countries and therefore its leverage over U.S. interests in those regions."

But if one were to argue that America is perhaps hoping that its alliance with those "critical players" and other "key allies" (Saudi Arabia, Iraq) would provide the U.S. with leverage over China's interests – use the "oil weapon" against it – or that Unocal is serving as "an organ of the U.S. government," he would probably be dismissed by Woolsey and Hunter as "anti-American." Unfortunately, as they advance a mercantilist and anti-Chinese agenda, they should not be surprised if they discover that they helped to create a mercantilist and anti-American China.