Commodities, China, and American Foreign Policy: How All Are Linked

Article excerpt

Future historians will note that President Hu Jintao followed up his visit to Washington in April 2006 with trips to Saudi Arabia and Nigeria. He went to the Middle East and Africa in search of a commodity which he did not feel that he could obtain in the United States: oil.

President Bush should have discussed energy policy with Hu Jintao because China has an insatiable demand for oil and other commodities which could have profound implications for the American economy. China's demand for commodities is now so great that it is increasingly the price setter in global markets. If the United States does not collaborate with China in promoting more conservation and energy efficiency, her demand for oil could drive the price over $100 per barrel during the next five years. The decision of the U.S. Congress to block the Chinese bid for Unocal last summer has also increased the risk that China will turn to rogue states such as Iran, the Sudan, and Venezuela in a search for energy supplies.

The debate about the Unocal bid last summer was so myopic Americans did not recognize that it was only a minor chapter in a much larger story. We passed a great threshold in world economic history during 2003 and 2004. China displaced the United States to become the world's leading consumer of copper, nickel, iron ore, lead, and other base metals. It also displaced Japan to become the world's second largest oil consumer.

China now consumes 22 percent of global copper output compared to 16 percent for the United States. It consumes 22 percent of global aluminum output compared to 20 percent for the United States. China's steel production will soon approach 400 million tonnes or a level twice as large as that of the United States and Japan combined.

China's oil consumption is now approaching seven million barrels per day compared to 5.5 million for Japan and 21 million for the United States. China accounted for one-third of the growth in global oil consumption during 2004 and played a major role driving prices over $40 per barrel.

China's need for raw materials has already had a major impact on her foreign policy. She is now attempting to negotiate free trade agreements with important commodity-producing countries such as Australia, South Africa, Chile, and Saudi Arabia. China has deployed four thousand military police in the Sudan to protect an oil pipeline which it built there six years ago with Petronas of Malaysia. Beijing has recently offered to give Nigeria arms in order to contain an insurgency by rebels in its oil producing provinces.

In November 2004, President Hu Jintao traveled to Brazil and Argentina in order to announce $30 billion worth of infrastructure investment to facilitate trade with China. A few months later Venezuelan President Hugo Chavez traveled to Beijing to seek Chinese investment in his country's oil fields. Mr. Chavez is very hostile to the Bush Administration and wants to promote China as an alternative to the American market.

China's oil companies have become important investors in many oil producing countries. Between 1990 and 2005, that made for $7 billion worth of foreign investments. After the collapse of the $18 billion Unocal bid, they announced nearly $12 billion worth of new investments and corporate takeovers in Kazakhstan, Ecuador, Syria, and Nigeria. As a result of Hu Jintao's visit to Nigeria, China will invest $4 billion in that country's infrastructure and refineries in return for access to new oil deposits. In March, China's oil companies also announced plans for new investments in Iran after committing to a $75 billion plan to purchase Iranian oil and gas two years ago.

The National Security Council is concerned about China's potential relationship with rogue states such as Iran and Sudan. It fears that China will offer such countries access to weapons and military technology in return for access to oil and gas reserves. …