by: Joseph Rebello & Elizabeth Price, Staff Reporters for The Wall Street Journal
Washington - Federal Reserve Chairman Alan Greenspan warned Congress Thursday that a big increase in tariffs on Chinese imports would "materially lower" U.S. living standards and urged lawmakers instead to let financial markets resolve trade imbalances with that country.
But, in testimony to the Senate Finance Committee, Mr. Greenspan said China ought to adopt a more flexible currency regime for the sake of its own economic stability and for the sake of "all participants in the global trading system."
The Fed chairman urged the Chinese government to act speedily to alter the fixed exchange rate system it has had for the last decade, saying "the sooner ... the better."
Treasury Secretary John Snow also said China must introduce a more flexible currency system and open its economy to more imports in order to head off a dangerous wave of trade protectionism around the world.
"Nothing would do more damage to the prospects of increasing living standards throughout the world than efforts to inhibit the flow of trade," Mr. Snow said in prepared testimony to the Senate Finance Committee, where he was appearing with Mr. Greenspan. "However, it is incumbent on China to address concerns before mounting pressures worldwide to restrict trade harm the openness of the international trading system."
The Chinese government manages its currency through intervention and a system of capital controls that effectively pegs its currency at 8.28 yuan to the U.S. dollar. For nearly two years the Bush administration has publicly urged China to move to a more flexible system. China's leaders have said they want to do so, but can only move when the banking system reforms sufficiently to handle the adjustment.
The delay has provoked impatience in Congress, where a raft of legislative proposals would impose trade sanctions on Chinese imports in retaliation for the currency peg.
One bill, sponsored by Sens. Charles Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, would impose 27.5% tariffs on imports from China if Beijing doesn't allow its currency to appreciate within a period of 180 days. That measure, in an amendment to unrelated legislation, recently attracted 67 votes in favor -- a very strong statement of support from both political parties. Messrs. Schumer and Graham agreed to withdraw it after Senate leaders promised a stand-alone vote this summer.
Mr. Snow said these proposals, if enacted, would not only harm the U.S. economy, but would also delay any action by the Chinese government to loosen its peg. "I cannot overstate my firm believe that resorting to isolationist trade policies would be ineffective, disruptive to markets and damaging to America's special role as the world's leading advocate for open markets and fair trade," Mr. Snow said. Imposing trade penalties on China would likely provoke Chinese retaliation against U.S. exports as well, he added.
Mr. Snow repeated that China's currency peg has become "distortionary" to world financial markets and hinders China's ability to control inflation in the economy. He again said that the most effective strategy for reducing global trade imbalances is for Asia countries to allow more flexible currency markets, faster economic growth in Europe and Japan, and raising savings in the U.S.
Mr. Greenspan said that the U.S. government shouldn't dictate precisely how China should change its fixed exchange-rate system, saying Chinese authorities are better-equipped to find the right remedy.
Mr. Snow also said the U.S. budget deficit should fall to below 3% of gross domestic product this year, if Congress keeps spending under control. "We are also working to put in place innovative policies to increase the savings rate," he said.
Mr. Greenspan told lawmakers that a steep increase in tariffs would be counterproductive, hurting U.S. consumers without reducing the overall U.S. trade deficit. "The broad tariff on Chinese goods that has recently been proposed would significantly lower U.S. imports from China but would comparably raise U.S. imports from other low-cost sources of supply." Prices of U.S. imports, he said, would rise slightly but "few, if any American jobs would be protected."
"More generally, any significant elevation of tariffs that substantially reduces our overall imports, by keeping out competitively priced goods, would materially lower our standard of living," Mr. Greenspan said. "A policy to dismantle the global trading system in a misguided effort to protect jobs from competition would redound to the eventual detriment of all U.S. job seekers, as well as millions of American consumers."
Mr. Greenspan played down the significance of the U.S. trade deficit with China, which reached a record $162 billion at the end of 2004. "The widening of the United States' bilateral trade deficit with China, measured gross, has been largely in lieu of wider deficits with other Asian economies, including Japan," he said. "Measured by value added, our bilateral deficits with China would have been far less, and our bilateral deficits with other Asian exporters would have been far more."
Under the circumstances, a decision by the Chinese government to revalue its currency -- which is also known as the renminbi -- would merely "redirect trade within Asia." He added: "Some observers mistakenly believe that a marked increase in the value of the Chinese renminbi relative to the U.S. dollar would significantly increase manufacturing activity and jobs in the United States. I am aware of no credible evidence that supports such a conclusion."
Still, Mr. Greenspan said, China should move quickly to change its exchange rate system -- for its own good. To maintain that system, China has to purchase large amounts of foreign currencies and issue domestic-currency bonds to keep inflation from running out of control.
That task, he said, will become increasingly difficult for its central bank to perform. "Sterilization of continuing inflows of speculative funds will presumably become more difficult as the scale of these operations, already large, increases over time," Mr. Greenspan said.
It's better, he said, for China to let market forces regulate the currency because "financial markets, if left free to continually reprice interest rates and asset values, will identify and respond to imbalances far sooner than a system based on administrative edict."
Note: Unocal’s Asian assets include a piece of the Baku-Tbilisi-Çeyhan (BTC) pipeline.
The Baku-Tbilisi-Çeyhan (BTC) pipeline development project is the key to understanding the US imperialist conniving that is behind Georgia’s Rose Revolution. Upon completion, the BTC pipeline network will be the world’s longest, costing well more than the initially proposed $3.6 billion and capable of extracting and exporting 50 million tons of Caspian oil and natural gas to Western markets beginning in late December 2004. The BTC Pipeline Company is responsible for planning and constructing this project; the major shareholders in this huge consortium include British Petroleum, France’s TotalFinaElf, Delta-Hess (a joint venture of Saudi Arabia’s Delta Oil and Amerada), ConocoPhillips and Unocal. http://www.infoshop.org/inews/article.php?story=04/02/23/0325444&query=unocal
Scarcely a month after Bush moved into the White House, Vice President Cheney had his first in a series of secret meetings with Kenneth Lay and other Enron executives. At that time, Enron stood to benefit from a trans-Afghan pipeline in securing inexpensive natural gas for its 3-billion dollar Dabhol power plant in Mumbai, India.
Cheney’s secret meetings with Lay and other Enron executives one month after Bush moved into the White House laid the foundation for the invasion of Afghanistan. The attack on the WTC was the catalyst by which Cheney could realize his agenda to takeover Afghanistan and thus control the flow of oil.
The U.S. is not interested in Caspian oil to supply its own internal industry. The U.S. is grabbing for control of the Caspian oil fields because other countries need this oil--and because the U.S. wants to control them. Other imperialist rivals--including Germany and Japan--are "energy poor" and need access to oilfields outside their borders. Most Third World countries are heavily dependent on imported oil. #msg-3775550
-Am
CENTRAL ASIA - CAUCASUS ANALYST Wednesday/May 22, 2002
ENERGY INTERESTS, THE U.S. GOVERNMENT, AND THE POST-TALIBAN TRANS-AFGHAN PIPELINE Ron Callari
Construction of oil and natural gas pipelines through Afghanistan was under serious consideration during the Clinton years. In 1996, Unocal won a contract to build a 1,005-mile pipeline in an effort to exploit the vast Turkmenistan natural gas fields. The pipeline would extend through Afghanistan and Pakistan, terminating at Multan, with a proposed 400-mile extension into India. The project was halted when the Taliban regime became unmanageable. President Bush appointed Zalmay Khalilzad, a former Unocal consultant, as his special envoy to Afghanistan. Today, the US desire to control fossil fuel in this region is paramount in how the energy sector is influencing the Bush administration's policies in Afghanistan and Central Asia.
BACKGROUND: George W. Bush's long and personal relationship with Enron's former CEO Kenneth Lay are legion, as is the latter's generous contribution of over $600,000 to the Bush-Cheney campaign. Scarcely a month after Bush moved into the White House, Vice President Cheney had his first in a series of secret meetings with Kenneth Lay and other Enron executives. At that time, Enron stood to benefit from a trans-Afghan pipeline in securing inexpensive natural gas for its 3-billion dollar Dabhol power plant in Mumbai, India.
It's clear that Cheney had his own conflicts of interest with Enron. Another chief benefactor in the Trans-Afghan pipeline deal would have been Halliburton, the huge oil pipeline construction firm which was previously headed by Cheney. After Cheney's selection as Bush's Vice Presidential candidate, Halliburton also contributed a huge amount of cash into the Bush-Cheney campaign coffers. Highlighting the Taliban, in a speech to the "Collateral Damage Conference" of the Cato Institute, Cheney said, "the good Lord didn't see fit to put oil and gas only where there are democratically elected regimes friendly to the United States. Occasionally we have to operate in places where, all things considered, one would not normally choose to go. But, we go where the business is."
A series of e-mail memos obtained by the Washington Post and NY Daily News in January 2002 revealed that the National Security Council led a "Dabhol Working Group" composed of officials from various Cabinet departments during the summer of 2001. The Working Group prepared "talking points" for both Cheney and Bush and recommended the need to "broaden the advocacy" of settling the Enron debt. The Post commented that the NSC went so far that it "acted as a sort of concierge service for Enron Chairman Kenneth L. Lay and India's national security adviser, Brajesh Mishra" in trying to arrange a dinner meeting between the Indian official and Lay.
But the house of cards collapsed dramatically on November 8, when Enron disclosed that it had overstated earnings dating back to 1997. Simultaneously, the administration discontinued its support for Enron in its discussions with the Indian government.
IMPLICATIONS: Henceforth, the U.S. will have to move the trans-Afghan pipeline forward, divorced of its relationship with Enron. Important factors and lessons from the past are integrated into the U.S.' current involvement in Afghanistan. The U.S. plan is all-encompassing, including military control, image building, balancing warlords, and avoiding Russian intervention,. It is reasonably clear that the U.S. will not depart from the region, as it did after the war with the Soviets in the 1980s, until it has achieved its goals. Now that the Great Game is afoot once again and the Taliban has been removed from the equation, the administration can accelerate the project that international oilmen euphemistically call the new "Silk Road." On February 8, Afghanistan's interim leader Hamid Karzai and Pakistan's president Pervez Musharraf agreed to revive plans for a Trans-Afghanistan route for Iranian gas. The next day, Turkmenistan chimed in that they hoped their Trans-Afghanistan route would soon be built.
Turkmenistan alone has large reserves of oil and 5.5 trillion cubic meters of gas (the fourth reserves in the world). However, Turkmenistan lacks capital and technology, and is far from its possible markets - and South Asia is the fastest growing market in Turkmenistan's vicinity.
Both Karzai and Khalilzad were formerly employed as consultants to Unocal, which spent much of the 1990s seeking to build the pipeline through Afghanistan. Unocal appears to have dropped the scheme, but smaller companies (such as Chase Energy and Caspian Energy Consulting) are now lobbying for its revival. The fact that Karzai and Khalilzad are basically inside traders makes them ideal henchmen to cut through the red tape and assist oil companies and the U.S. to revitalize this dormant project.
U.S. military bases now encircle Afghanistan and the US troop deployment may be as high as 7,000, according to a recent report from the Pentagon. In the words of President Bush "we are going for the long haul." The U.S. learned its lesson well in the 1990s when it relied on the Taliban to restore stability in Afghanistan; now it has invested its own military might to achieve its goals. While key U.S. officials have been appointed to move the project along, the taint of Enron's influence over the government is still too fresh and under continual scrutiny by the press. So, with each step forward, the administration is quick to characterize itself as a catalyst, not a benefactor. Assistant Secretary of State Elizabeth Jones's recent statement underscores the U.S. position that economics is equally important as the war on terrorism. She noted that "a range of U.S.-supported programs designed to promote economic development in Central Asia are every bit as important as our security assistance in dealing with the long-term root causes of terrorism."
CONCLUSIONS: The Trans-Afghan pipeline is being revitalized by an administration that has strong interests in the energy sector. But it also fits well with the U.S. quest to lessen its, and the world's, dependency on Persian Gulf energy sources. The United States can no longer depend exclusively on the traditional sources of supply from Saudi Arabia, Venezuela and Canada. It needs to diversify its imports, and the Caspian states are a major element in this equation. The national energy plan drawn up in early 2001called on the Bush administration to undertake initiatives aimed at increasing oil and gas imports from alternate sources of supply. In particular, it requested government to work with the leaders of the Central Asian countries to boost production in the Caspian region and to build new pipelines to the West. The trans-Afghan pipeline is second step (after the Baku-Ceyhan pipeline) toward achieving this objective . By bypassing northern or western routes, the trans-Afghan pipeline will eliminate dependency on Russia or Iran. The dissolution of the Soviet Union, the rise of the Central Asian Republics and the fall of the Taliban have all allowed the United States to get a stronger foothold in the region in its quest for new sources of fossil fuel.
AUTHOR BIO: Ron Callari is an American freelance journalist and editorial cartoonist for publications that include The World and I, the Sacramento News & Review, The Monitor, San Antonio Current, Rocky Mountain Bullhorn, Fairfield County News and AlterNet. Callari has authored several articles focusing on Enron, Afghanistan and the Caspian States. He holds an MBA degree from Cornell University.
Copyright 2001 The Central Asia-Caucasus Analyst. All rights reserved
Market Data 
Markets 
AI
