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?