COMMENT The clean-tech trade war gets down
and dirty By Benjamin A Shobert
Here was how globalization was supposed to
work: China would get low wage manufacturing jobs
- most of which would relocate from the developed
West - and America would replace these lost jobs
with a revamped service economy and high
technology manufacturing. In this scenario, the
forces of globalization would require change that
would be painful in the short-term, but ultimately
manageable for the American economy.
But
among the many miscalculations made by those who
advocated for this swap were a generous failure to
imagine how a painful financial crisis could
cripple the American economy, poisoning the
domestic political well, or how quickly the Chinese
economy would move into
higher technology industries such as clean-tech.
China's success stands in stark contrast
to America's atrophy. With so little the American
political system seems capable of constructively
achieving, trade recriminations are one of the
rare moments of bipartisan support that seem to
have traction in Capital Hill. Adding to America's
general dissatisfaction with its relationship
towards China is the 2012 Presidential election,
which has brought China into the firing line.
What confuses things even further is that
while both Democrats and Republicans find China a
convenient target for political recrimination,
they disagree on what clean-tech means for the
American economy. To Democrats, clean-tech is an
infant industry that needs government funding and
support. Democrats also believe clean-tech is
important to address global warming and resource
scarcity, problems Republicans have difficulty
admitting exist in the first place. To
Republicans, clean-tech will become a viable
industry only when the market signals conventional
solutions are no longer inadequate and private
capital steps in to fund clean-tech businesses.
Consequently, Republicans should be
extremely agnostic over whether to make much of a
fuss about China's clean-tech policies, regardless
of how they impact American clean-tech companies.
Yet, because of the easy political points that can
be scored by attacking China, Republicans have
become willing to focus on China's trade policies
in a sector of the national economy where the GOP
believes little in the way of market-based demand
actually exists in the first place.
This
toxic mix of impoverished politics and compromised
national policy revealed itself again in the last
two weeks after the Obama administration ordered
the Ralls Corporation, a Chinese company based in
Delaware, to divest its ownership of a wind farm
located near a US Navy Training facility. Ralls
had plans to build up a total of four wind farms
near the Oregon site where the American Navy
conducts drone training. The plans were reviewed
by the Committee on Foreign Investment in the
United States (CFIUS) who last week recommended to
President Obama that Ralls be ordered to divest
their holdings due to national security concerns.
The most generous reading of the Obama
Administration's decision takes it at face value,
and points back to a 2009 CFIUS decision to block
the purchase of American mining company Firstgold
by the Chinese firm Northwest Non-Ferrous
International. Then, the CFIUS decision was
supported because the mining assets in question
were in close proximity to the Fallon Naval Air
Station; however, even then the justification did
not ring true to many.
Firstgold's CEO
Terry Lynch added, "We fail to see the connection
between [US] national security and our principal
asset the Relief Canyon mine which has existed at
its present location since the early 1980's." The
mine in question was 50 miles from the Fallon
naval base. More importantly, the political push
back took place during a period when tensions
related to China's pursuit of mining assets of
gold and rare earths was in the spotlight.
The Northwest-Firstgold proposed deal
ended before the Obama Administration was forced
to formally block the deal. Up until this week, in
situations like Ralls found itself in, the
frustrated exit by the Chinese investor has tended
to be the case in many CFIUS related situations
with potential Chinese investment. Ralls appears
to be willing to buck this trend, and has made
public its intentions to sue President Obama over
what they believe are violations of the company's
legal rights. The ease with which potential
Chinese investment into the United States can be
tripped up merely by suggesting a potential
national security issue has made the threat of a
CFIUS evaluation as damaging as an actual CFIUS
review.
A less generous reading of the
Ralls Corporation decision by President Obama
reduces the matter down to simple, one-dimensional
politics. Eager to prove himself as tough on China
as GOP Presidential nominee Mitt Romney, did
President Obama believe following through on the
CFIUS decision would strengthen his political
standing? Was this decision captive to short-term
electoral politics, ones that will subside in the
aftermath of the Presidential election? Or, is
this sort of action what Chinese investors must
come to expect if they want to do business in
America? If so, how long can American businesses
and states anticipate they will be met by Chinese
investors willing to take the risks inherent in an
investment getting squashed because of an
unforeseen political backlash?
Attempting
to make sense of the policy framework within which
Ralls' investment was squashed is hard enough.
Even more difficult is to envision what precisely
the national security threat is that CFIUS found
so troubling? Did the fact that Sany, a Chinese
manufacturer of the wind turbines, would be
installing their products on the Oregon wind farm
provoke the national security concern? If so, what
exactly is the national security scenario CFIUS
envisioned? Would the Sany wind turbines be
outfitted with secret monitoring equipment? Would
they have dormant countermeasures that could be
turned on in the event of a future US-Sino
conflict?
While these may seem a stretch
for wind farms, concerns just like these have
plagued Chinese companies such as Huawei who have
been unable to satisfactorily answer hypothetical
questions that come from deep within the minds of
American policy makers and, much more likely,
elected officials.
The CFIUS process is
specific enough to have legitimacy, while being
vague enough to provoke questions that are rarely
answered satisfactorily. Exactly how captive CFIUS
is to political agendas, or susceptible to
outright manipulation, is hotly debated by
experts. For CFIUS to work properly, its processes
and findings must exist within the same framework
of transparency and petitioning that American
trade negotiators ask of China.
None of
this is to suggest that legitimate national
security or high level trade policy issues will
not cloud the process; however, if American
aspires to see China increasingly open its markets
and allow foreign competitors to go after
lucrative markets dominated by China's state owned
enterprises, the United States should be careful
to avoid sending the message that certain Chinese
investments can be categorically denied based on
poorly defined national security concerns.
Globalization has set in motion a process
that is already straining many of the assumptions
that seemed sensible in the 90s, but are clearly
coming under assault in the aftermath of the 2008
financial crisis. To hear America's politicians,
the jobs the US was eager for China to have then
are now those America wants back.
If
America and China cannot find a way to respect
each other's economic agendas and out-compete one
another on as level a playing field as the world
can offer today, both countries will take steps to
wall off parts of their economy from foreign
competition. In the short-term this would slow
down inter-connectivity between the two nations in
high technology industries, leaving both to
interact primarily in the old economy, a part of
the manufacturing world China is eager to leave
behind, and America seems to miss.
Benjamin A Shobert is the
Managing Director of Rubicon Strategy Group, a
consulting firm specialized in strategy analysis
for companies looking to enter emerging economies.
He is the author of the upcoming book Blame
China and can be followed at www.CrossTheRubiconBlog.com.
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