Let Business Trump Quest for Dominance

November 13, 2005 • Commentary
This article appeared in the Japan Times on November 13, 2005.

The task for U.S. policymakers is to engage China while treating it as a rising great power that could be a legitimate threat. In particular, America needs to continue a policy of engagement and avoid destructive protectionism. Forging a constructive U.S.-China partnership will be the major challenge facing President George W. Bush during his China visit.

The president calls U.S.-China relations “good” but “complex.” Lately the emphasis has been on “complex.” Yes, U.S.-China relations are “complex,” but they have always been so. Allowing Congress to steer those relations only adds to the uncertainty and complexity. The United States needs a firm commitment to engagement, and China needs to adhere to “peaceful development.”

Little will be gained by constantly treating China as a threat on the basis of presumed intentions.

The U.S. administration appears to be moving in the desired direction. In a pathbreaking speech to the National Committee on U.S.-China Relations in New York on Sept. 21, Deputy Secretary of State Robert B. Zoellick avoided confrontation and instead called upon China “to become a responsible stakeholder in the international system.”

It is a grave mistake to use the national security card to deny Chinese firms the right to purchase natural resources in the open market when there is no credible security risk, as was clearly the case with the proposed CNOOC‐​Unocal deal, which Congress derailed last summer. Beijing will view such behavior as yet another attempt by the U.S. to widen its power at the expense of China’s development, further increasing anti‐​American sentiment.

China’s thirst for oil and natural gas has driven world demand upward and increased prices, and that trend is likely to continue. Over time, production and consumption will respond to higher prices as producers search for new supplies and consumers conserve and switch to cheaper alternatives. If Congress interferes with the market process, future production will suffer, and U.S. energy companies will find it more difficult to operate in foreign countries.

Instead of centering foreign policy on hypothetical “intentions,” it would be more fruitful to rely on observed actions and fulfilled promises. People who would deny China access to U.S. markets or assets on the basis of “economic security” would do well to remember what Kevin Hassett, director of economic policy studies at the American Enterprise Institute, has noted — namely, that “any economic harm we do to China by impeding it will be as harmful to our own citizens as it is to the Chinese.”

Sticking to our free‐​trade principles, rather than sacrificing them piecemeal to special interest groups, would be the best defense of freedom, peace and prosperity. The U.S. and China are both net importers of oil, and both depend heavily on imports from Saudi Arabia, which is neither a democratic regime nor one that respects human rights.

China is not a centrally planned economy like the former Soviet Union or North Korea. It is one of the most liberalized economies in the developing world. The U.S. has more to gain from a “cooperative and constructive” policy of engagement with China than from one based on the premise that China wants to and can dominate the world.

Even if commercial engagement does not preclude conflict, it clearly reduces the likelihood of conflict. China’s growing commercial relations with Taiwan are a case in point. With massive investments in China, Taiwanese business owners and politicians have an incentive to take a cooperative rather than a confrontational approach in dealing with Beijing, and China has an incentive to avoid conflict that could cause a significant loss of trade and wealth.

Chinese President Hu Jintao’s term “peaceful development,” as a way to describe China’s rise and as a strategy for dealing with the U.S. and other nations, has merit. It is certainly a better description of post‐​Maoist China than much of the heated rhetoric heard on Capitol Hill. China is less apt to cause trouble if it concentrates on wealth creation and poverty reduction rather than global dominance — the goal of the former Soviet Union.

Today, after more than 25 years of economic reform and liberalization, the Chinese people are far more prosperous than they were during the reign of Mao Zedong. It would be a tragedy if that progress were jeopardized by a confrontational U.S. approach toward China. U.S.-China relations ultimately should rest on adherence to a rules‐​based liberal trading order, which means that purely commercial decisions should be market driven, not politicized.

As congressional reaction to the CNOOC‐​Unocal deal shows, however, rising U.S. hostility toward China could lead to a train wreck unless calmer voices prevail.

If future U.S.-China relations are to improve, the prevailing zero‐​sum, mercantilist mentality must give way to a more positive way of thinking about economic relations and security. What China needs is less government and more markets. And the surest way to achieve that result is to strengthen the policy of engagement. Denying China access to our markets while requiring it to open its markets is hypocritical and will only play into the hands of hardliners who already distrust the U.S.

Since 1978 China has dramatically transformed its economy and increased economic freedom. Congress should see China’s prosperity as a positive development, not a threat to U.S. security.

As Federal Reserve Board chairman Alan Greenspan said before the Senate Finance Committee in June, “In the decades ahead, it is in our interest and that of the global economy that China continues to progress toward becoming a more market‐​based, productive, and dynamic economy in which individual initiative, not government decision‐​making, is the fundamental strength behind economic activity. For our part, it is essential that we not put that outcome, or our future, at risk with a step back into protectionism.”

About the Author
James A. Dorn

Vice President for Monetary Studies, Senior Fellow, and Editor of Cato Journal