THREE MEMBERS of the Bush cabinet will be in Beijing for trade talks tomorrow, one day after a visit there today by Secretary of State Condoleezza Rice. Some of the issues that come up will be genuinely difficult: for example, how to reconcile the U.S. interest in protecting the intellectual property that's the lifeblood of its ideas-based economy with Chinese indifference to such rights at its stage of development. Yet other issues in the U.S.-China relationship shouldn't be so difficult to handle. The upcoming meetings provide an opportunity to defuse tensions.
The most obviously unnecessary flash point concerns China's bid for Unocal Corp., which both sides have handled badly. Many members of Congress appear to believe that Chinese acquisition of this small oil company could threaten U.S. energy security. But it makes no difference whether China buys its oil on the open market, making oil more scarce and more expensive for the United States, or from companies that it controls, which has the same effect. Meanwhile China's leadership has lectured Congress on the evils of political intervention in business transactions, a hypocritical stance given that a political decision to buy up oil assets lies behind China's bid for Unocal and the Chinese have asserted that the state-owned company making the bid operates independently of the government -- a claim that convinces nobody. Both sides should see this deal for what it is: a politically motivated Chinese offer that the United States should feel free to accept in the absence of a clear national security reason to do otherwise.
The argument over China's currency could also be better handled by both sides. China's leadership has mistakenly refused to alter its peg to the U.S. dollar, which keeps the value of its currency artificially low. But the United States has mistakenly made a big deal of this issue. Even if the Chinese did revalue, and even if this revaluation were copied by other Asian economies, the result would be to reduce the huge U.S. trade deficit only modestly. Moreover, pressuring China to revalue actually makes it harder for the Chinese to do so. The markets have gotten the idea that the Bush administration wants China to revalue by at least 10 percent. But China, if it does revalue, will probably go for more like 5 percent. The markets will therefore expect the first revaluation to be followed by a second one. The likelihood that revaluation would be followed by continued speculative pressure on the Chinese currency makes the policy of revaluation riskier than it need be.
Finally, both sides could be more honest about China's military buildup. The Pentagon is getting ready to release its assessment of China's military spending, which is higher than Beijing admits. China's government is likely to protest that the official numbers are real. But the truth is that China's published military budget excludes the cost of research and development of weapons systems, the cost of military pensions and reservists' salaries, and the cost of China's equivalent of the National Guard. China ought to admit the truth about its budget and then explain its size honestly. This shouldn't be impossible. China's defense spending remains less than one-fifth of the Pentagon's.
Relations between a superpower and an emerging rival are bound to be touchy. China is reluctant to use its influence to help the United States stop North Korea from building nuclear weapons. It is challenging American influence in Asia by fostering initiatives such as the upcoming East Asia Summit, to which the United States has not been invited. China also obstructs American efforts to pressure Sudan over the genocide in Darfur and has made energy deals in Iran, defying American efforts to isolate the country. But these genuine points of conflict with China are all the more reason to avoid phony ones.