- The Washington Times - Sunday, October 24, 2010

ANALYSIS/OPINION:

After the Pearl Harbor catastrophe, a sardonic joke made the rounds: “Well, we did get the Third Avenue El back!” The dismantled elevated railroad along Manhattan’s Upper East Side had been sold as scrap to Japan — and to Tokyo’s burgeoning armaments industries that armed and equipped the attackers.

It has long been argued that thriving commercial relations ultimately produce mutual understanding between states, preventing wars. The most obvious refutation of this idea is France and the German states, Europe’s most interlocked economies that went to war once a generation for 1,000 years. It was in part escalating trade friction that led a stubbornly isolationist United States into the clash with Japan and brought the country into World War II.

By contrast, Washington has generally accepted at face value Beijing’s affirmations that it was entering the global economic arena cautiously and with benign intent. A more suspicious approach from the United States, it was argued, would be a self-fulfilling prophecy producing a belligerent China. There was also the question of Taiwan’s future to take into account.

But rapid expansion of Beijing’s military — against a so-far undesignated enemy — now has to be taken into account. Chinese officials have abandoned public assurances that — unlike Germany and Japan’s aggressive emergence in the 19th century as world powers — China’s march to prosperity will be “a peaceful rising.” Instead, China’s military throws down aggressive public challenges and there appears to be a campaign to test the waters — the fishing trawler “bumping” Japanese coastal patrols near disputed islands not far from U.S. bases in Okinawa. Washington finds itself begging for “routine” communication between the two militaries to avoid just such untoward incidents.

But U.S. rhetoric, too, has changed.

Secretary of State Hillary Rodham Clinton has sided with the Southeast Asian nations against Beijing’s claims in the South China Sea, athwart one of the world’s most important commercial arteries. In the Tokyo-Beijing dust-up, Washington says it recognizes Japanese occupation of the uninhabited Senkaku Islands — called the Diaoyu Islands by the Chinese — but not necessarily Japanese sovereignty. However, the Obama administration has reiterated that its protective nuclear umbrella covers Japan against all comers, including China.

Increasingly, these strategic problems are indistinguishable from trade issues. China’s “world factory” provides cheap merchandise to the advanced economies and gorges on imported raw materials. But Beijing’s subsidized exports threaten other countries’ manufacturing bases. Its retrograde consumption patterns — accounting for just 7 percent of the nation’s growth in the first nine months of 2010, compared with 25 percent in capital plant expansion — lie behind its discombobulating role in the international financial order.

There is new drama in growing American dependence — shared by other industrial partners — on Chinese components and raw materials, not only essential to consumer products but critical for military hardware. Beijing has blocked so-called “rare earth” shipments to Japan, after threatening to slash total exports. Rare earths, minerals used in electronic gear, are not all that rare but production elsewhere had closed down in the face of costly environmental constraints, problems Chinese producers don’t face.

China’s unfair trading practices — “dumping” goods below cost on export markets — may backfire, as even the U.S. Congress is bestirring itself to get old production going — if need be with subsidies.

Equally worrying is China’s ability to use its growing hoard of dollar debt to invest and trade in the U.S. and other overseas markets, with some of the investment targeting critical infrastructure. A Chinese telecommunications company, using an American front, is bidding for a transmission tower construction contract, including towers servicing U.S. national security agencies. With their rapidly improving technology and subsidies, Beijing could undercut other bidders.

Since the bidding firm emerged from the Chinese military, the suspicion that it might be more than a commercial venture is at least plausible. The possibility of imbedded “spyware” had long been a concern, given the world’s increasing dependence on China for PCs and computer chips, even before “the Stuxnet worm” — allegedly designed by Israeli technicians — sabotaged the Iranian nuclear weapons program and renewed global fears of cyberwarfare.

When a government-owned Chinese oil company — there is, in fact, little distinction among China’s major firms — buys into a U.S. company with new shale gas technology, is it just another commercial transaction?

These examples highlight a whole new set of questions that will dog the Obama administration and the incoming Congress, both of which are already wrestling with the momentous Chinese trade conundrum.

Sol Sanders, a veteran foreign correspondent and analyst, writes weekly on the convergence of international politics, business and economics. He can be reached at [email protected]

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