U.S.-China Relations in the Wake of CNOOC

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Congress set a dangerous precedent when itinterfered with Hong Kong–based CNOOC, Ltd.’sbid for Unocal. Supporters of the interventionargued that CNOOC, a subsidiary of state-ownedChina National Offshore Oil Company, couldpose a threat to U.S. economic and national security.Yet Unocal was only a small player in the U.S.energy market and had no technology that mightpose a real threat to U.S. security. Nonetheless,congressional pressures prompted CNOOC towithdraw its $18.5 billion bid, paving the way forChevron to acquire Unocal for $17.7 billion.

The increasingly confrontational approachCongress is taking toward China is leading to “creepingprotectionism,” often in the guise of protectingU.S. national security. Although it is proper to criticizeChina for its human rights violations and its lackof a transparent legal system, we should not ignorethe substantial progress China has made since itembarked on economic liberalization in 1978.

A policy of engagement—or what Hu Jintao,president of the People’s Republic of China, calls“peaceful development”—is a necessary conditionfor constructive U.S.-China relations. AlthoughChina’s competitiveness does pose a threat to certainU.S. economic interests, it also benefitsAmerican consumers and exporters. Protectionismwould harm both the United States and China andwould increase the likelihood of conflict. Hardlinerswould gain at the expense of more reasonablevoices.

To avert the risk of conflict, the United Statesneeds to treat China as a normal great power, notas an adversary; ensure that only those commercialtransactions that genuinely threaten nationalsecurity are blocked; and recognize that byincreasing economic freedom we increase personalfreedom. Our economic security, as well asChina’s, will depend on sound free-market policies,not on destructive protectionism.

James A. Dorn

James A. Dorn is a China specialist and vice president for academic affairs at the Cato Institute. He is also professor of economics at Towson University in Maryland and coeditor of China's Future: Constructive Partner or Emerging Threat?