INVESTING: Embracing China thorny issue for government, markets

International trade issues abound. There are both long- and short-term stock market implications to these deals, along with political and social effects. China is the overwhelming player in most of the stories, but some closer neighbors are also in the game.

A major Chinese oil firm called CNOOC made an offer for Unocal, which was in the process of being bought out by Chevron. The CNOOC offer is higher by a few billion dollars, and it is cash, but there are other considerations involved here. One small item is our national security.

Oil is a strategic U.S. asset and some are concerned about allowing a midsize producer to fall into the hands of a communist nation. If China were in a similar democratic situation as India, the national security question would not hold in the Unocal deal.

The American and European governments are considering tariffs against the Chinese textile industry. This is a brilliant idea to save, at most, a few thousand jobs here so that millions of middle- and lower-income Americans can pay more for an insignificant need, like clothes!

Underpinning the debate over the two previous issues is the constant topic of the Chinese yuan and its fixed rate to the U.S. dollar. American politicians love this because they think screaming about socalled inequities of the Chinese currency policy scores votes for them.

It may score votes, but it doesn’t do anything to improve their I.Q. We aren’t losing manufacturing jobs to China today because of the exchange rates. We are losing jobs to China today for the same reason we have lost low-skilled jobs to (name the place) for the last 100 years. If we want to maintain our constantly improving standard of living, we have to constantly find ways to improve productivity. Right now, there are some decent productivity improvements coming from the ability to outsource stuff to China.

By the way, China has lost more manufacturing jobs over the last 10 years than we have. And you can just credit good, old-fashioned automation for that.

Another trade issue making headlines now is the Central American Free Trade Agreement. It is set to go before Congress soon and critics are complaining it will lead to even more U.S. job loss. You know the insane argument, Ross Perot’s giantsucking-sound tirade. Canada, the United States and Mexico are all far better off with the North American Free Trade Agreement than without it. CAFTA, though, has much more potential than NAFTA due to the positive political changes it will make.

Congress has the main part in all these deals. Watch the votes and you can easily see what stocks will be affected and how. Could be something to do this summer after you finish reading the next Harry Potter book.