US should face facts: China's a big part of its future

The politics of international trade is changing and with it the traditional positions of Democrats and Republicans on foreign economic policy. Democrats have abandoned their liberal trade heritage from President Franklin D. Roosevelt and Secretary of State Cordell Hull. They're now the protectionist party. Republicans have abandoned their protectionist heritage from Alexander Hamilton and the Depression-era Smoot-Hawley tariff-raising trade bill. They're now the free-trade party. On economic merits, the Republicans are right.

The Central American Free Trade Agreement (CAFTA) would eliminate tariffs on trade between the member countries - five in Central America, plus the Dominican Republic and the US. It was approved by the Senate last week by a vote of 54 to 45. Republicans split 43 to 13 in favor; Democrats 33 to 19 opposed. The House is expected to consider the bill this month.

A major push in turning Democrats around on these issues has come from organized labor, which has seen jobs disappear as factories have moved closer to cheap labor sources. A worker who has seen his South Carolina textile mill job move to Mexico or Central America isn't impressed by the argument that this means cheaper shirts for US consumers, nor with the argument that it means higher incomes in Mexico and Central America and, thus, the ability to import more from the US. Former Speaker of the House Tip O'Neill was fond of saying, "all politics is local," and it doesn't get more local than this. Nevertheless, more people benefit from expanded trade than are hurt by it.

There are many examples of industries moving from one country or area to another because of shifting economic advantages. The textile industry didn't originate in the American South; that was only one stop in a long migration. The industry began in 19th-century England where coal supplied cheap fuel and where cotton grown by slave labor in the US provided cheap raw material. The industry then moved to New England, which was closer to the supply, thus saving transportation costs, and where late 19th- century immigrants provided cheap labor. In the 20th century, the South lured the industry away by offering the same competitive advantages. Now the industry is moving to Latin America and Asia, primarily because of cheaper labor.

This is part of the broader worldwide economic adjustment of globalization - mixing economies in ways unlikely ever to be reversed.

The most recent, and certainly most significant, manifestation of globalization is the Chinese National Offshore Oil Corporation (CNOOC) offer to pay $18.5 billion in cash for the American oil company Unocal. Chinese companies have also bought, among others, IBM's personal computer business, and Maytag, the US maker of household appliances. Some members of Congress have expressed alarm over the threat to national security they see in Chinese competition for US oil supplies.

Instead, they should rejoice. Foreign investment is the only way the US can sustain a foreign trade deficit now approaching $800 billion a year. We should therefore welcome an inflow of Chinese money. At the same time, the US, in company with other countries, should press the Chinese to let their currency, the yuan, float in international markets. It is supported now at an unrealistically high exchange rate of 8.3 yuan to a dollar. This is a major, but by no means the only, cause of the US trade deficit.

It isn't just American companies the Chinese are looking for. Their economic boom (the Chinese economy is growing at roughly 9 percent a year) is creating a seemingly insatiable demand for oil. China is also pursuing deals with Sudan, Russia, Iran, and others. The national security alarmists fear Chinese collaboration with countries such as these. They also fear the potential for a Chinese squeeze on the US in a time of crisis in relations between the two nations - over Taiwan, for example.

The frantic Chinese search for oil will add to upward pressure on oil prices and hasten the day when the world does indeed run out of oil. As things stand, China uses three times as much energy as the world average to produce a dollar's worth of goods.

The more the Chinese and US economies are intertwined, the less likely the countries are to go to war with each other. Economic integration will do more to spread peace than democracy will. Based on America's experience in the Middle East, it may also be easier and cheaper to bring about.

Pat M. Holt is a former chief of staff of the Senate Foreign Relations Committee.

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