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  • Dec 23, 2014
  • Updated: 11:02am

Warning of Sino-US conflict over resources based on fallacy

PUBLISHED : Wednesday, 16 November, 2011, 12:00am
UPDATED : Wednesday, 16 November, 2011, 12:00am

It's widely known that the 2009 Copenhagen summit failed to secure a new international treaty to combat climate change largely because of resistance from China.

But I bet you didn't know that Beijing's opposition to new limits on developed countries' greenhouse gas emissions was all part of a dastardly plot to seize control of the planet's resources and dominate the world's economy.

Similarly, you might have thought that the financial crisis of 2008 was caused by excess US consumer debt, dangerous financial engineering and lax regulation.

But I'll wager you didn't realise that it was actually China's insatiable demand for commodity imports that triggered Wall Street's financial collapse.

Well, I have to confess I was ignorant too, until I came across both arguments in a curious new book entitled Red Alert.

Written by US financial pundits Stephen Leeb and Gregory Dorsey and subtitled How China's growing prosperity threatens the American way of life, this is scaremongering at its most sensational.

Take the authors' view on the origins of the financial crisis. They argue that in the years preceding 2008, growing Chinese demand propelled a rise in commodity prices that ate severely into the real incomes of American consumers. For example, they say that between 2005 and 2010, energy costs rose from 4 per cent of average household income to 10 per cent.

This increase in costs, they say, forced American consumers to pile up the debts that caused the crisis.

'Any way you look at it, then, rising commodity prices were the essential cause of the Great Recession ... and lying behind rising commodities was that giant global economic phenomenon, China.'

Then there's Copenhagen. The authors pick up on reports from the time that blamed the Chinese delegate for watering down the final agreement to the extent that even emissions targets for developed countries were omitted.

Most observers thought Beijing wanted to avoid setting a precedent that could rebound later on China. But Leeb and Dorsey have a different explanation. They argue that China shot down the imposition of emissions limits for developed countries because Beijing wanted to slow the rich world's investment in renewable energy. That way, China would be able to corner the market in many of the scarce raw materials needed to build a clean energy infrastructure without facing competition for resources from developed countries.

'As China amasses these dwindling resources, other countries, including the United States, will - quite literally - be left out in the cold,' they write.

Leeb and Dorsey insist that 'there's no point in demonising China'. They then proceed for 200 pages to do exactly that in the crudest fashion imaginable.

Their basic idea is that the world is running desperately short of a whole range of essential resources, from oil through copper to the rare earth elements used in magnets, lasers and specialist glasses. And control of those supplies that are left, they say, is rapidly being seized by Beijing as part of a scheme to secure China's dominance of the world's trading system and the decline of the US economy.

Despite their insistence that they don't want to portray China as an enemy, the authors make free and deliberate use of the language of conflict. They write about China's 'assault' on the commodity markets. They describe 'the first salvo of a potentially civilisation-altering war between China and the United States'. And they argue that 'the Chinese are quietly invading Afghanistan' in pursuit of its copper.

The response that they advocate from the US is couched in similarly militaristic terms. 'We have to put the entire nation on a wartime footing if we are to avoid defeat,' they write, calling for an all-out, government-directed investment effort to ensure America's energy and resource security.

'Our money should be used to retool and train an army of workers capable of producing solar panels by the millions', as well as building a smart grid, electrifying the US railway system and erecting wind turbines 'in every suitable location in the country'.

There is much, much more of this, all portraying an America locked in a life-or-death struggle with China for a diminishing resource base.

And throughout, the authors seem blindly oblivious to the fallacy that sits at the heart of their argument: their conviction that economic development is a zero sum game.

They seem to believe that the world economy is a pie, and that if China eats more, then the US must go without.

In reality, of course, the pie gets bigger. And while supplies of traditional commodities may be finite, increasing competition for resources naturally spurs efficiency gains and innovative substitutions rather than conflict.

So if you enjoy conspiracy theories and scary stories of economic doom, you'll enjoy Red Alert. But if you want a level-headed analysis of the developing US-China relationship, you'll need to look elsewhere.

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