One of the saddest and most tragic spectacles in history is to
witness a nation trying to exercise its power long after the
economic origins of that power have gone into decline. Think of
Austria languishing as the rest of Europe industrialized or France
trying to defend itself against Germany in 1940 or even Russia
trying to play the Cold War combatant as Communism rotted it from
within.
Today we are undergoing a similar dance in our economic relation
with China. And wouldn’t you know, it’s our liberal friends in
Congress, so enthusiastic about hamstringing American enterprise,
who are the last to realize that they are undercutting our
political hegemony as well.
I am speaking, of course, of Senator Charles Schumer of New York
and Representative Edward Markey of Massachusetts, both of whom
have decided we are in a position to tell a Chinese company that it
cannot acquire a Canadian company because… well, because we’re
Americans and the world has to pay attention to what we say.
Here’s the setup. Last week the Chinese National Offshore Oil
Company (CNOOC) offered $15 billion to buy Nexen, a Canadian
drilling company with large holdings in the Athabasca Tar Sands of
Alberta, which is rapidly becoming Canada’s pot of gold in energy
development. Now it so happens that only six months ago the
Canadians were planning to ship nearly all of this newly developed
oil to Texas via the Keystone Pipeline. Environmentalists, however,
swore the pipeline would be built over their dead bodies and
President Obama, not wanting to be left with no natural
constituencies except single mothers and minorities, decided to
appease environmentalists and block the pipeline.
The Canadians were shocked. They had long planned to sell this
oil south of the border. Canada is already our largest supplier of
foreign oil and it was inconceivable that we wouldn’t want to take
more it instead of relying on Iraq, Nigeria, Venezuela, and other
unpredictable sources. All this brought the sudden realization that
Canada is dependent on us for 97 percent of their oil exports.
Prime Minister Steven Harper quickly decided it was time to
diversify. He took a well-publicized trip to China and the Nexen
purchase was one of the first results.
Like any other voluntary exchange, the deal will bring benefits
to both sides. Canada is actually running short of capital in
developing its tar sands resources and China’s investment will
help. At the same time, China wants access to both oil resources —
something they are pursuing around the world — and Western
knowledge and technology. Nexen has some very sophisticated
expertise in offshore drilling
In passing, it might be worth noting that the Canadians are
becoming very prosperous at this. They are developing resources in
a way that we aren’t. They’ve also gotten control of their
government. They recently passed the U.S. in average income and are
starting to purchase US resources. A
recent analysis of the Phoenix housing market found it was
beginning to come back because of an influx of Canadians buying
second homes.
So who could possibly be opposed to all this? Well, liberal
Democrats, of course. They can’t stand the idea of anybody getting
rich without being able to tax them. Nor can they countenance the
idea of people just going out and doing
things without asking permission. Remember, “You didn’t build that.
Somebody else did,” and so when two entities, even foreign
corporations, do things without permission the government has to
intervene.
And so our friend Chuck Schumer fired off a letter
asking Treasury Secretary Timothy Geithner to block the deal until
the Chinese government takes “concrete, enforceable steps to open
that country’s markets to foreign investment and level the playing
field in international trade.”
It is rare that we have so much leverage to exert upon China. We
should not let this window of opportunity pass us by. At some
point, we have to put our foot down over China’s refusal to play by
the rules of free trade.
Markey followed with a letter demanding that Geithner insist
that CNOOC pay royalties on tracts that Nexen recently won in the
Gulf of Mexico where the government offered them royalty-free. “I
believe this merger could lead to a massive transfer of wealth from
the American people to the Chinese government, and I strongly urge
you to block this proposed transaction until, at a minimum, parties
to the merger agree to pay royalties to the U.S. taxpayer on all
oil produced off American shores or relinquish any ownership
interests in these leases,” Markey
fulminated.
As Christopher Helman points out in
Forbes, these assets in the Gulf of Mexico that supposedly
offer such a “rare” opportunity for “leverage” consist of 200
leases worth $1.5 billion, less than 10 percent of Nexen’s net
worth. Most of them have not been explored yet. The reason they
were let out royalty-free is that they are very difficult and
unpromising areas that few companies were eager to risk. If the
government had asked the usual 18 percent, no one might have bid at
all. It will cost hundreds of millions to explore and hundreds of
millions more to develop if oil is discovered. If the U.S.
seriously tries to exercise this “leverage,” CNOOC-Nexen will
probably just sell them off.
As for the “massive transfer of wealth,” just compare the $1.5
billion in lease assets to the $1.1 billion per
day the U.S. now spends on foreign oil. As Helman
points out, if CNOOC does find oil in these tracts, it will
probably be sold to Texas refineries. (Oil tankers can’t make it
through the Panama Canal.) So the result would be more oil from
domestic resources and less dependence on Saudi Arabia, Nigeria and
Venezuela, even if the Chinese do take their cut.
There’s one other relevant detail here. In 2005, CNOOC made a
perfectly legitimate bid of the same $18 billion for Unocal, the
California oil company that had sold its U.S. assets and shifted
most of its operations to Central Asia. (It was once used by the
CIA to spy on the Taliban.) The House of Representatives
immediately objected to that deal, saying it “threatened national
security.” Pressure was put on President Bush and CNOOC eventually
withdrew the offer. So how is that going to look when Senator
Schumer and Congressman Markey start talking about “opening China’s
markets to foreign investment and level the playing field in
international trade?”
The world does not dance to America’s tune. We won our hegemony
through economic might and military muscle. All that is now
atrophying. We have dug ourselves a huge hole by placing all kinds
of oil and gas reserves off limits, refusing to develop our own
resources, refusing to accept foreign resources through the
Keystone Pipeline, downgrading all business activity and
scapegoating those who succeed at it. The Chinese now hold $1.2
trillion in U.S. Treasuries. Is it surprising that they might want
to exchange some of it for concrete assets?
Political power has always drawn its strength from economic
success. Is it so surprising then to find that people such Senator
Schumer and Congressman Markey, who are so quick to dismiss the
accomplishments of America’s merchant power, should be the last to
realize that their political power is eroding as well?
