How not to engage in the global economy

Chief Executive, The, August-Sept, 2005

POLITICIANS HAVE SHOT down the effort of China National Offshore Oil Corp. (CNOOC) to buy Unocal. What a wrong-headed, dangerous thing to have done.

There are several reasons: First, it invites retaliation. Although the Chinese are going to maintain surface calm pending the official visit of President Hu Jintao to the United States, the Chinese at some point could decide that they've bought enough U.S. government paper, thank you very much. That would be distinctly unpleasant.

Another form of retaliation could threaten U.S. companies operating on the Mainland. From General Motors to Coca-Cola to Microsoft, U.S. chief executives have huge stakes in China and all of them depend to some extent on relations with Chinese government entities and the Communist Party. Why would the U.S. Congress invite retaliation against American interests?

Then there's the question of asset values. The Chinese have accumulated hundreds of billions of dollars as a result of their trade surplus with us. If we let the Chinese put some percentage of that to work in our tangible assets, that would drive up the value of all American assets. Allowing a more robust "recycling" of China's dollars is a win-win.

But there's also a broader issue. As the title of Clyde Prestowitz's new book suggests, there are "three billion new capitalists" who are entering the global economy and therefore are going to be competing against Americans--but they will also be buying U.S. products and services. We can't just build walls to keep them out of Fortress America.

The only sensible strategy is to identify crucial American strengths and keep enhancing them. We have to keep moving up the technology and productivity ladders at the same time that we sell our leading-edge goods and services to the emerging giants. A deepened interdependency can be good for everyone.

But no one on Capitol Hill seems to understand that. All that Washington seems capable of is knee-jerk, shortsighted reactions. What's completely missing is a long-term strategy for U.S. competitiveness in a rapidly changing world. For many years, CEOs have been content to let Washington drift along in political gridlock. But with each day that passes, it's becoming clearer that political ineptitude is going to hurt American economic interests--and therefore the bottom lines of CEOs.