Jon Christian Ryter -- Losing Two Birds With One Stone

LOSING TWO BIRDS WITH ONE STONE

By Jon Christian Ryter

July 20, 2005

NewsWithViews.com

As I predicted last week the board of directors for China National Offshore Oil Company [CNOOC]�the Chinese energy group�approved a plan to raise their $18.5 billion dollar bid by what may be as much as $10 billion more if needed to sway the UNOCAL board which, last Thursday, was considering rejecting the CNOOC offer and accepting the Chevron deal�which had been tentatively approved by UNOCAL before the unsolicited CNOOC offer was placed on the table. In addition, CNOOC has offered to place over $2 billion in an escrow account for UNOCAL shareholders�even if CNOOC's offer is rejected�but only if the board agrees to put the CNOOC offer up for a shareholder vote.

According to several China watchers something other than the $2 billion "vote" proffer, and upping the ante for UNOCAL by another $2.5 to $10 billion appears to be going on in the background�out of the public eye. Increasing its $67 per share offer was only part of the CNOOC board's decision. China is apparently taking steps to increase the "comfort zone" in the minds of US regulators in the Committee of Foreign Investment, the President's Foreign Intelligence Advisory Board and the ranking members of the House Armed Service Committee on both sides of aisle by initiating measures designed to reduce the political fallout in the United States if China takes control of UNOCAL�at the risk of China then diverting much needed oil from the American consumers to the Chinese military.

China appears to be attempting to assure the Bush Administration through Treasury Secretary John Snow and the Committee on Foreign Investment that quid pro quos demanded by Snow and Bush would likely happen if the Committee viewed the takeover of UNOCAL by CNOOC with the same indifference it would view a UNOCAL takeover by Chevron or Royal Dutch Shell�or perhaps even Lukid Oil..

The caveat that no one in the Bush Administration is talking too loudly about the sudden willingness on the part of the Chinese to acquiesce on what has been a growing economic stumbling block between the United States and China�China's steadfast refusal to stop pegging the value of its currency, the renminbi, on the American dollar when its value should actually be pegged, collectively, to the average worth of all of currencies of all of its trading partners rather than the strongest currency in the world since that makes it appear that the currency of an emerging politico-economic power is as stable as the currency of the world's strongest socio-economic power.

By pegging the renminbi to the American dollar, the trade imbalance between the United States and China will remain constant even though the trade imbalances between America and all of its other trading partners throughout the world will fluctuate as the exchange rates of those currencies change with the cyclic inflation causes by the amounts of currency those nations print. China's currency should be pegged to its own economy, not that of the United States.

The Bush Administration and Snow have been trying to force China into revaluating their currency for the better part of a year to no avail. China has warned Snow�and Bush�not to meddle in the internal affairs of China. Last month Senators Chuck Schumer [D-NY] and Lindsay Graham [R-SC] cosponsored a bill that would impose a 27.5% tariff on Chinese imports. This was a move that did not make China happen, and caused a flurry of demands and threats from the Chinese government which decided to "bully" America with a statement that implying there was a very great likelihood that China would use nuclear weapons against the United States.

Shocking as it may seem, the Chinese are being bluntly honest. That's their plan�and it has unwaveringly been their plan since the Korean War. And their doing so will not be contingent upon some overt act by America against China. It will be contingent solely upon China's ability to do it. In other words, the moment China believes it can deal a lethal blow to America�regardless of the casualties it suffers (since if China loses half of its people it will be a healthier nation)�an avalanche of nuclear missiles will rain down upon America's critical infrastructure. Only the industrialists, bankers and merchants disbelieve that fact. They are convinced if China owns a large amount of that real estate, or has billions of dollars invested in our economy, they would not willingly destroy. The problem with that theory is that you have to be a capitalist to believe it. Even with the fastest growing economy in the world, the Chinese are not capitalists. They don't think like capitalists. Capitalism is simply a means to an end...and you know whose end they have in mind.

Yet, Congress and the White House�pushed by industrialists, bankers and merchants�continue to search for economic solutions to political-military problems. Completely ignoring the military threat from China as though it didn't exist, and without realizing that the industrial nations are supplying China with all of the resources it requires to build an offensive missile system large enough to simultaneously take out England and the United States, the US Treasury blindly nitpicks the renminbi as Congress imperturbably threatens legislation to impose tariffs on Chinese goods.

Snow has demanded that Beijing devalue the renminbi at least 10% and that it adopt the same type of currency regime that was adopted by Singapore. That regime pegged Singapore's currency to the average rate of the countries with whom it regularly traded. The formula that would be used to determine the value of renminbi was not revealed. At the same time, Schumer and Graham were pushing legislation to impose the 27.5% tariff. Snow and Federal Reserve Chairman Alan Greenspan argued that the Schumer-Graham bill was counterproductive because imposing a punitive tariff would make it much more difficult to entice China to revalue its currency since China, quite frankly, is not intimidated by the western threats of finger-slapping since it now possesses the ability to disrupt the economies of it trading partners. China's foreign trade reserves for the first six months of this year alone topped $711 billion. Its total trade reserves now top $3,000 billion. Most of the reserves China has thus far spent has been on war machines and weapons systems. So, while our government and the merchant manufacturers who hope to capitalize on China's growing consumer market with its own products, are assuring us that China is being "Americanized," their trade surpluses are definitely not buying Chevrolets and apple pie.

Adding to the concerns of Greenspan and Snow are several other bills that have popped up in both the House and Senate that are specifically designed to punish China for selling slave labor goods and government subsidized goods to the American consumer. These bills�all of which are tied to Bush's Central America Free Trade Agreement legislation [CAFTA]�are not likely to go away since these bills will provide the cover the Democrats need to vote for CAFTA, blame the GOP for the job losses, and still get reelected next year.

Congressman Bill Thomas [R-CA], chairman of the powerful Ways & Means Committee, is supporting legislation that would allow American companies to petition Congress for tariffs against China or Chinese products if they have evidence the products were subsidized by the Chinese government, or that the goods were made by slave labor. Thomas had previously resisted similar legislation as being too punitive for free traders to allow, but now with a rapidly growing anti-China sentiment in the United States, the inclusion of anti-China trade measures is believed by many in Congress as the only way they can get enough political cover to keep their jobs after voting to extend NAFTA into a Central America job drain apparatus.

Congress will claim that the imperative need to punish China for its trade practices as well as the increased export of good to Central America made CAFTA a "win-win" bill that it would, by far, outweigh any damage that would be done to the American economy by allowing a few companies to transfer low paying jobs to President George W. Bush's CAFTA partners in Central America.

The Senate passed CAFTA by what was nearly a party line vote�54 to 45�with one Democrat�Joe Lieberman�abstaining. (See who voted which way�click here) is stuck in the House. The Bush White House has not been able to convince the GOP that CAFTA means jobs for America since America's experience with NAFTA has all too clearly shown that CAFTA, like NAFTA is a job redistribution program that will benefit only the human capital-rich underbelly of the Americas. House Democrats, who are almost universally opposed to CAFTA (after catching so much flack from labor unions for passing NAFTA) believe the GOP ploy of using China as the scapegoat is an act of desperation because it can't find the votes to enact CAFTA without the Democrats. Congressman Charlie Rangel [D-NY] made that point clear when he said: "The Republican leadership cannot get the votes to pass CAFTA on its own merits."

The Thomas-English bill (named after Phil English [R-PA]) would force Bush (and all ensuing presidents) to more closely watch how China complies with its trade obligations�particularly how it deals with trade piracy, using slave labor to produce export goods, and how it manipulates its currency. The Democrats, who are constructing their own China trade amendment insist their bill is much tougher on China since it defines currency manipulation as a trade violation.

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It now appears that as the Treasury announced it was likely that China would devalue its currency in August, part of the quid pro quo offered to Bush in exchange for a positive recommendation on the UNOCAL sale to CNOOC was [a] the devaluation of the renminbi and [b] allowing the United States to impose trade sanctions against them without retaliation against America.