Page 2 of
2 SPEAKING
FREELY The Chinese
dollar hoard thunders
forward By William Hawkins
use" technology with military
applications, whether through trade, acquisitions
or espionage.
It protested against new US
Commerce Department security measures on US
high-tech exports that were announced on June 15.
The measures are much weaker than originally
envisaged, however, because of lobbying by certain
business groups that
seek
to profit by helping China rise to great-power
status.
Beijing and its "business"
partners cannot be trusted when US security is at
stake. Public authorities must be vigilant and
have the authority to act to guard the national
interest.
On June 29, the US Senate passed
the Foreign Investment and National Security Act.
The bipartisan work of Senate Banking Committee
chairman Christopher Dodd and ranking member
Richard Shelby, it would strengthen the Committee
on Foreign Investment in the United States
(CFIUS). This multi-agency committee was created
in 1988 to analyze foreign acquisitions of
privately owned entities to determine their affect
on national security.
There is wide
agreement - including a scathing 2005 report by
the Government Accountability Office - that CFIUS
has not done its duty, rubber-stamping deals
without much serious investigation. Dodd's bill is
a first step toward meaningful reform but still
leaves the Treasury as chair of CFIUS. Treasury's
main concern is the recycling of the trade
deficit. If foreigners will not buy US products,
they can buy the US factories in which the
products are made instead, just so long as the
dollars come "home" in some fashion.
Of
course, the best thing would be to stop the
outflow of dollars to China in the first place.
Dodd has also offered the Currency Reform and
Financial Markets Access Act to force Beijing to
halt its currency manipulation and bring down the
US trade deficit. Unfortunately, the bill is too
weak to accomplish its aim.
It leaves the
Treasury in charge of the currency issue. The bill
does seek to "help" Treasury cite China for
currency manipulation by dropping the need to show
China's "intent" to gain a trade advantage, the
lame excuse Treasury has been using to avoid
confronting Beijing.
The bill also
requires Treasury to go to the International
Monetary Fund to complain about currency
manipulation, and gives Treasury the authority to
file a World Trade Organization case if
"benchmarks" for improvements in the exchange rate
are not met. But the flaw in this approach is
not that Treasury officials are not smart enough
to know what is going on, but that under Secretary
Henry Paulson, they are committed to a policy that
benefits China and those corporations that have
invested in Beijing's rise. Among these
corporations is Goldman Sachs, which Paulson
headed. Paulson still sees China as a commercial
partner, not a geopolitical rival.
With
Chinese reserves likely to reach $2 trillion by
the end of the current Congress in early 2009,
stronger action is needed to keep Beijing from
using its vast store of purchasing power as a
strategic weapon against the US economy in an
attempt to shift the global balance of power.
As dangerous as it has been for the US
economy to transfer so much financial wealth to
China by a trade deficit that has also undermined
US industrial preeminence, it would further
compound the error if Beijing were allowed to use
its new wealth without constraints. If Friedman's
theory is to have any validity, China's "paper"
dollars must be rendered less useful so that
Americans can avoid paying the full (and heavy)
price for their economic-policy errors.
Beijing is well aware of how foreign
investment can be used in this regard, remembering
how China was divided into spheres of influence by
the imperialist powers of the 19th century. Last
August, its Ministry of Commerce set new limits on
foreign investment that could transfer control of
leading enterprises or traditional Chinese brands,
threaten companies with more than 2,000 employees
or pose risks to "economic security" - not just
military security.
Beijing uses the term
"comprehensive national power" to unite economic
and security concerns. The United States must
think in the same way.
William
Hawkins is senior fellow for national security
studies at the US Business and Industry Council in
Washington, DC.
(Copyright 2007
William Hawkins.)
Speaking Freely is
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