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China Trade Appeasement By: William R. Hawkins
AmericanEconomicAlert.org | Wednesday, October 25, 2006

In its October 16 Review & Outlook editorial column, the Wall Street Journal tried to give credit for the UN resolution condemning North Korea’s nuclear test to Treasury Secretary Henry “Hank” Paulson, rather than to UN ambassador John Bolton or Secretary of State Condoleezza Rice. The column was entitled “Paulson's China Victory.” The Wall Street Journal editorial page, which often serves as a journalist mouthpiece for transnational corporatism, cited China’s alleged cooperation at the UN as “one more reason to congratulate Treasury Secretary Hank Paulson, who recently prevented a U.S.-China blowup by persuading Chuck Schumer and Lindsey Graham to drop a Senate vote on their 27.5 percent tariff bill against China.”

This statement is meant to carry the water of those banks and firms that are invested in China and that lobbied against the Schumer-Graham bill – not out of any fear that it might actually pass, but that it might offend the Beijing regime, upon whose tolerance the multinationals rely. Big Business constantly argues that economic cooperation with Beijing can serve American security interests by reducing tensions. But this self-serving claim is untenable, because it has cause and effect backwards.

China’s priority has been to prevent pressures that could collapse the Democratic People’s Republic of Korea (DPRK), which is Beijing’s buffer state in Northeast Asia. China has not suddenly moved closer to allowing punitive action against Pyongyang because the U.S. has been accommodating on trade policy. It has only moved out of fear that something even worse may befall China itself if it continues to protect Kim Jong Il’s rogue behavior.

There is a growing mood in Congress for punitive action against China, both for its mercantilist trade policies, which are harmful to U.S.-based firms, and for its use of the gains from trade (hard currency, tech transfers, increased industrial capacity) to support a military and diplomatic agenda at odds with American interests. The Schumer-Graham bill on currency manipulation is only part of the growing backlash against the administration’s appeasement policy towards Beijing. Business interests have held the upper hand in the Bush era, but there is growing concern in the national security wing of the administration about the geopolitical consequences of Beijing’s rapid rise.

Chinese leaders know that if they do not show some flexibility on North Korea in the wake of its nuclear test, this backlash will build further. It could tip the balance of forces in Washington, moving national interests ahead of private interests. The U.S. has enormous leverage on China, which needs the irreplaceable American market to fuel its growth. In contrast, there are plenty of rival producers both here and abroad eager to replace Chinese output. It would be wiser to manage trade so as to strengthen alliances than to empower adversaries.  

If anything, Paulson’s record of close business ties to Beijing give Chinese leaders hope that they can get away with only minimal concessions. Chinese leaders believe that U.S. leaders will continue to accept words in place of deeds, as they have done for years in both trade and arms control diplomacy. In that regard, the “victory” the WSJ is so eager to accord Paulson is far less than it appears, because China is still acting to protect Kim Jong Il’s regime.

Consider the actual statements from the Chinese Foreign Ministry, which usually go unreported in the media: At an October 12 press conference, Foreign Ministry Spokesman Liu Jianchao was asked whether the “punitive” measures in UN Resolution 1718 were in conflict with Beijing’s earlier position that North Korea should not be “punished” for its nuclear test. Liu replied, “China has not changed its position. The position of the Chinese government has been consistent. Punishment is not the purpose. We should take effective, appropriate and well-measured step to make all parties aware that the denuclearization of the Korean Peninsula serves the interest of all. All parties should hold a correct position on such a major issue, return to the negotiation table, avoid any action that may worsen the situation, so as to peacefully solve the nuclear issue on the Peninsula through consultation and dialogue. This is our firm position as well as our proposition.”

Liu was then asked if China would “cut off or restrain” its economic support to North Korea. He replied, “China is committed to developing China-DPRK good-neighborly relations and friendly cooperation. The people in the two countries share profound friendship. For a long period, China has provided with the DPRK with economic assistance within its capacity. The main purpose is to help the DPRK people to improve livelihood. This has been a policy long upheld by the Chinese government, because it helps improve the living conditions of the DPRK people.” Thus, Beijing is not ready to use its leverage to force change in Pyongyang, because it does not want change in Pyongyang.

The media made much of Beijing’s October 9 statement, citing “the common opposition of the international community” to North Korea’s nuclear test. The Chinese said, “China strongly urges the DPRK to honor its commitment to denuclearization, stop all moves that may further worsen the situation and return to the Six-Party Talks.” But when it came to action to back up this urging, all Beijing would say was, “The Chinese Government calls on all parties concerned to be cool-headed in response and persist in seeking a peaceful solution through consultation and dialogue.” It should be remembered that China offered to host the Six-Party Talks in the immediate aftermath of the U.S. invasion of Iraq, so as to prevent any similar effort to impose a regime change in Pyongyang. Talk instead of action is what best protects Kim Jong Il.

This is the identical tact Beijing used after Pyongyang test fired ballistic missiles in July. In partnership with Russia, China offered its own UN resolution to head off the stronger language being put forward by Japan and the United States. Compared to the Japanese draft, the Chinese-Russian draft did not make sanctions mandatory and did not invoke Chapter VII of the UN charter, which can authorize military action as well as sanctions. When Resolution 1695 was adopted, it “required”member states to “exercise vigilance and prevent” either the transfer to, or the procurement from, North Korea “of missiles or missile related-items, materials, goods and technology” related to WMD programs. But it did not put these requirements under Chapter VII nor apply any broader sanctions. Chinese diplomacy pulled the teeth from the UN resolution.

It should be remembered that a week after the missile tests, the leaders of China and North Korea exchanged congratulatory messages on the occasion of the 45th anniversary of the signing of the Treaty of Friendship, Cooperation and Mutual Assistance between the two communist regimes.  

Resolution 1718 is a step forward, in that it puts actions against North Korea directly under Chapter VII. Its most important provision is one of personal accomplish for Ambassador Bolton: the authorization of cargo inspections to expand the legitimacy of the Proliferation Security Initiative. The PSI is an international “coalition of the willing” numbering over 60 governments. Its purpose is to facilitate the sharing of intelligence information, the tracking of suspect international cargo and the conducting of joint military exercises to interdict the shipments. It was the brainchild of Bolton when he was serving as Under Secretary of State for Arms Control and International Security. China has fought against the PSI at every turn. It did not rush to embrace it in a spirit of cooperation. Beijing had to be pushed hard by Bolton to allow cargo inspection.

Secretary of State Rice is now on a trip to Asia to push Beijing (among others) to actually enforce the terms of Resolution 1718. China's UN ambassador Wang Guangya drew a firm line Monday, saying "inspection is different than interdiction and interception." Beijing has argued that the resolution only allows limited enforcement, and does not obligate anyone to act. China has apparently told North Korea not to conduct any more tests, as this would only further the crisis and put Chinese as well as Korean interests at risk. However, dismantling Pyongyang's nuclear program or even containing its arms trade, are big issues on which Beijing is not likely to be cooperative of its own volition.

At Monday’s press conference announcing her trip, Rice also noted, “The Iranian Government is watching and it can now see that the international community will respond to threats from nuclear proliferation.” China has also been providing Tehran with protection from strong international action against its nuclear program.

If progress is to be made on North Korea and Iran, Beijing must be made to realize that its “free ride” is over. If China does not become a responsible stakeholder, it will be dealt out of the game. That is the only message that will gain traction in Beijing. Strength is the basis of respect in China, whereas any weakness is to be exploited, ruthlessly. The transnational business community is the epitome of weakness, constantly trying to reassure China that its influence in Washington will keep anything bad from happening to the Beijing regime no matter what it does.

The great statesman Teddy Roosevelt had little patience for the “men of means who have made the till their fatherland.” He believed, “When a question of national honor or of national right or wrong is at stake, financial interest should not be considered for a moment.” Thus, Paulson should be locked in his office until the crisis is resolved, so that he does not undermine the work of those whose primary concern is the national security of the United States.

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William Hawkins is a consultant on international economics and national security issues.

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