June 28, 2005

Unocal Mercantilism

The argument about the Chinese trying to buy Unocal provokes hesitance and opposition over the deal from many different people. The argument from people otherwise disposed to free trade and open markets is that oil is a strategic asset and China is untrustworthy or hostile.

Last things first, China isn't a good country, nor is it a particularly friendly country. But it's not a major threat. We still possess the nuclear deterrent and we're working on methods to shoot down missiles fired our way. Taiwan alone could probably beat the Chinese in a shooting war, so long as the US was there to keep nukes off the table. Add Japan, Australia and Great Britain to the mess (maybe Canada and New Zealand and a slew of Latin American countries and Asians fearful of attack, and maybe even Russian assistance) and you have one seriously lost war for China. While 1.2 billion people sounds impressive, you still have to arm them, train them, move them and command them. The fact is that China's army isn't as good as ours and it's not going to be for a while. They're not a major military threat to us and that means we have the ability to keep them from being major military threats to other countries.

While it's definitely true that the Chinese Communists are both evil and pugnacious in many of their activities, is that any less true of the Saudis or others? Are they not also pretty despicable in their behavior? The fact is that the Chinese are invested in us and we're invested in them. Our companies and factories are in their borders and our two countries are enriching each other as we speak. We're intertwined. If our economy started to slow, so too would theirs. Moreover if they started behaving belligerently or depriving us of oil then we'd have time to make a response. The fact is that they have little interest in screwing us over and they'd have limited ability to do so even if we let them buy Unocal.

Second, if oil is a strategic asset that we shouldn't be letting other countries control, then why do we buy over half of ours from other countries? More to the point, why should those other countries sell to us? If we try to hoard all the "strategic assets" to ourselves then so will other countries. If we don't trust the international market that we've tried to spread around the world, then why should other countries? We're not perfect in free trade by any means, but other countries have needed prodding to get as far as they have.

We'd see a partial reverse in globalization. Demand could rise in response to a new emphasis on obtaning "strategic assets" and supply could be restricted as it became more difficult to obtain across borders. Efficiency could also drop as more "strategic assets" were stockpiled in preparation for shortages and thus various resources like oil, steel and coal would go underutilized.

The fact is that necessary goods and services will exist and that we can't do it all ourselves - and we certainly can't do it by ourselves as effectively as we could in an open global trade regime. Just what is a strategic asset, anyway? Oil, coal, steel, wheat, grain, dairy, butter, salt, rubber, what? Our military needs a lot of stuff to go, as does our economy. In fact, a large portion of our economy is necessary to keep other parts of it going, everything from gas to paper and pens is critical to our economy's current operations. The bureaucracy alone involved in monitoring and controlling "strategic asset" industries is scarcely worth any risks avoided.

Moreover, it really weakens our arguments for free trade agreements when we partake in it so inconsistently. People will accept an inconsistent trade policy as long as our movement is in a pretty consistent direction. Taking such a self-interested view of the policy destroys a good chunk of US credibility on the issue.

Maybe blocking this one purchase won't counteract all the free trade initiatives of the last sixty years. After all, we still have plenty of tariffs, NTBs and subsidies, not to mention a wealth of strategic exemptions. But I do know that moving in that direction is the wrong way to go. We shouldn't try to do everything ourselves because it's difficult and inefficient at best and impoverishing and doomed to failure at worst.

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