AMERICAN BUSINESS leaders and policymakers cannot afford to indulge in unrealistic expectations but need to face geopolitical and geo-economic realities. The United States may be the world's sole superpower at this moment in time, but if we do not address our growing fiscal and current account deficits and if we mismanage our relations with other key actors--notably China--then American leadership within the global community will be seriously weakened. For America to project leadership abroad, this administration and Congress must be prepared to take the high road and demonstrate leadership at home. Too often in recent years, shrill rhetoric, political expediency and a focus on short-term issues have distracted us from the larger picture.

For the United States to secure and advance its national interests, it needs to conduct a foreign policy that is consistent and understands the importance of carefully managing economic relations as a way to build shared interests with other states. It is very true that there can be significant differences between the United States and other major powers over values and political systems, but it is important that we never allow our trading and economic relations to become hostage to these differences. Overcoming legacies of mistrust and hostility is another benefit that can emerge from closer economic and trading ties.

Take China. In 2000, in written testimony before the House Ways and Means Committee in support of China's accession to the World Trade Organization (WTO), I noted that I could "think of no more important geo-economic challenge facing the United States today" than successfully integrating China into the global economic order. Five years later, I continue to believe that the Sino-American relationship may be our country's single most important bilateral relationship. It is unlikely that China's political system will ever mirror ours. The histories and cultures of countries are vastly different, so it is unrealistic to expect China to have a political system that parallels any other. China's political system will reflect its own history and culture, and while it may change over time, we should not expect that our model is the only acceptable political system. While political change has been taking place in China over the past twenty years or so, we should also bear in mind that China's 1.3 billion people represent an enormous and still-untapped market for U.S. products and services. The United States needs a cooperative China, one that accepts international obligations by integrating into the rules-based economic and security arrangements that govern global conduct. All major powers have their own national interests that they will pursue. This does not mean, however, that compromises cannot be worked out through negotiations, nor should an individual difference in a specific sector be permitted to affect the overall relationship. Globalization of the world economy raises new challenges that must be dealt with realistically. No single nation can have its "own way" in a global marketplace.

So I do not understand why some in Washington talk about using a "strategy of containment" against China. This is simply not a relevant term. How does one "contain" China? Look at a map. China will project its influence into every country in Asia. Over the last three years, China has overtaken the United States to become the largest trading partner of Japan, South Korea and the entire ASEAN region. Robert Blackwill's comments on India's perspective vis-à-vis China are quite instructive:

India is enormously attentive to the rise of Chinese power. Let me make clear, however, that this will not lead to joint U.S.-Indian containment of the PRC . . . no Indian politician of any consequence supports such a policy. But it does mean this: Behind the elevated rhetoric that emits from New Delhi regarding relations between India and China, the Indians understand better than most that Asia is being fundamentally changed by the weight of PRC economic power and diplomatic skill.

It is much more productive to engage China and encourage its integration into the larger global community--to make China a stakeholder in the existing American-led international system that facilitates trade, economic development and regional security.

Of course, some have suggested that China may reach a crisis point, where the leadership would be unable to manage the economy or cope with significant political unrest. First, it is important to recognize that what China has achieved in terms of its development over the past two decades has never been achieved before on this planet. I am generally optimistic about the continued economic growth of China. Still, no economy develops in a straight line, certainly not one in a country the size of China. There are going to be bumps in the road, slowdowns and even setbacks. Certainly, there are serious issues that will confront the Chinese leadership. Not everyone in China has benefited equally from the tremendous growth that has taken place. The rural sector and the interior areas of the country risk being left behind as the urban coastal regions surge forward. Beijing is well aware that the country faces serious problems addressing environmental concerns and the provision of healthcare, pensions and other social services, and that corruption continues to be a major drag on the economy. These are not uncommon issues for a country growing as rapidly as China has over the last twenty years. But the current leadership is trying to manage these problems and find stable, long-term solutions. So, to expect China to implode in the foreseeable future seems a very unrealistic basis on which to formulate U.S. policy toward Beijing.

WE NEED to have a strategy that is conducive to facilitating a constructive relationship with China. This means recognizing that China, like any other country, has its own national interests. It also acknowledges that U.S. and Chinese interests do not necessarily have to be compatible. What this does not mean, however, is that China (or any other country for that matter) simply defers to the wishes and needs of the United States.

Much has been made in recent years, and even in the pages of The National Interest, of the competition between the United States and China for raw materials--such as basic metals, coal and oil--of which there are finite supplies. A developing economy like China's (or India's) is going to consume large amounts of natural resources. It is not surprising, therefore, that Chinese firms are deployed all over the world attempting to lock in supplies for China. Some American pundits seem to have this odd notion that China should "stay home" and not be purchasing materials from Africa or from our "backyard" in Latin America. It doesn't make any sense whatsoever for Washington to insist that China "cease and desist" simply because we want them to.

The reality of international politics is that every country, not just China, is in one way or another a competitor with the United States. Good relations between the United States and other countries are not defined by the absence of competition but by skillful management of the issues, working to tap down areas of potential conflict while promoting cooperation in other fields. Indeed, as I have argued countless times, the United States should never let differences on individual issues, as important as they may be, distort or detract from the overall relationship. It was a mistake to make Japan a bogeyman during the 1980s, and our fears proved to be unfounded. We should not make a similar error with regard to China.

This is why the tumult over CNOOC's bid to purchase Unocal this past summer was so disturbing. At the time, I strongly endorsed the proposal not only because it looked like the best offer from the point of view of Unocal's shareholders, but because I felt that the Chinese offer reflected its "need to secure its energy supplies and its desire to invest prudently some of its large foreign currency holdings"--both of which were clear national interests for China, and more importantly, interests that did not threaten vital U.S. interests.1 It was a modest investment--$18.5 billion, compared with $350 billion in direct U.S. investments in China (and only $490 million in other direct Chinese investments in the United States). Moreover, most of Unocal's assets were based in Asia, not in the territory of the United States.

This is not to suggest that Chevron was not entitled and even expected by its shareholders to defend its interests aggressively in the dispute over Unocal. But the campaign against the deal in Congress went much further and ultimately appeared to develop into a campaign against any major Chinese investment in the United States.

It surprised me how quick many were to ascribe "nefarious motives" to something I felt should be treated as a routine business transaction, which is why I wrote, "Suspicion of Chinese intentions is undermining a rational approach to doing business with China." Some cited the controlling role of the Chinese state in CNOOC as a reason for opposing the sale--but after all, many major companies around the world are controlled by governments, Airbus being one of the best examples. I do not know why such an issue was made over it.

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