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The "Goldman Sachs Effect" Transfers the Strategic Advantage to China
William R. Hawkins
Thursday, September 28, 2006
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William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.
A front page article in the September 25 issue of Defense News reported that China has tried to blind U.S. satellites with high-powered lasers, which can disable electro-optical satellites like the giant Keyhole spacecraft or even interfere with radar satellites like the Lacrosse. Satellites have become critical to American military communications, surveillance, and targeting.  Thus they are at the heart of the strategy to transform the U.S. military through net-centric warfare systems.

That China, a strategic rival of the United States in East Asia and increasingly in this hemisphere, would seek to disrupt American capabilities should not be surprising.  There have been reports for many years that Beijing was working on a variety of anti-satellite weapons. What is truly alarming is the response from the Bush White House, or, rather, the lack thereof.

According to the Defense News report, “Pentagon officials, however, have kept quiet about China’s efforts as part of a Bush administration policy to not anger Beijing, which is a leading U.S. trading partner and seen as key to dealing with North Korea and Iran. Even the Pentagon’s recent China report failed to mention Beijing’s tests. Rather, after a contentious debate, the White House directed the Pentagon to limit its concern to one line.”

The desire of the White House not to “anger” Beijing is an attitude apparently not reciprocated in China, where there seems to be no fear of angering America by testing weapons against U.S. targets – or even, on occasion, threatening nuclear attack against the U.S. homeland. Who instills fear, and who shows fear, is a measure of the real balance of power in a relationship.

Let’s call this the “Goldman Sachs Effect” – after the international banking firm that has supplied two Treasury Secretaries in the last decade, Robert Rubin in the Clinton Administration and now Henry Paulson in the Bush Administration.  Current Treasury chief Paulson took the job after winning assurances from the White House that he would run China policy, even as Goldman Sachs continues to raise capital for Chinese industry and the dictatorial regime. In effect, Goldman has been able to substitute its trans-Pacific, private business agenda for a U.S. national strategy.

(The Goldman Sachs Effect is not limited to the top Treasury post.  The ethically questionable practice of shuttling between government and private firms, known colloquially as the “revolving door,” was recently highlighted by Robert Zoellick, Deputy Secretary of States and former U.S. Trade Representative, who announced that he was leaving government for a high post at Goldman Sachs. Additionally, President Bush's chief of staff, Josh Bolten, was Executive Director for Legal & Government Affairs in Goldman Sachs’ London office before coming to Washington. Goldman Sachs senior partner Stephen Friedman briefly headed the National Economic Council before returning to the firm.)  

The trade-off between economics and security works against the United States on both ends. It is well known that Beijing manipulates the value of its currency to gain a competitive advantage against American and other trade rivals. Chinese officials claim that reforming their currency policy would cause economic turmoil, harming China's “fragile” banks and financial sector. Paulson has accepted this explanation, and on his recent trip to Beijing said the U.S. would be “patient.” Yet, last May, while Paulson was still Goldman Sachs CEO, the firm invested $2.6 billion in the Industrial & Commercial Bank of China, the country’s largest bank.  It is the largest single investment Goldman Sachs has ever made.  According to a Sept. 28 report in the Wall Street Journal, “when ICBC, as the bank is known, lists its shares on the Hong Kong and Shanghai stock markets next month, the value of Goldman's stake could double based on current demand for the offering.” So much for “fragile” Chinese banks!

Not that Goldman Sachs is alone in its desire to avoid upsetting Beijing. Washington’s infamous K Street lobbying legions are fully engaged by Big Business in the campaign of mollifying China at every turn. There is genuine, and well founded, fear that Beijing’s communist elite will retaliate against any commercial interest that shows the slightest resistance to Chinese ambitions. Beijing has integrated its economic and security strategies, whereas in the United States they are at odds – because major corporations no longer consider themselves to be part of the larger American society. These multinational corporations are willing to sacrifice the long-term security of the United States for the chance to make a few extra bucks here and now. Thus they support a policy of appeasement in the hopes of avoiding any confrontations that might interfere with trade or elevate security issues to the top of the policy agenda.

The diplomatic protection Beijing has provided Iran and North Korea – frustrating in the process U.S. efforts to curb their respective nuclear programs – is even spun by the Administration and the multinationals into an additional reason not to press China on sensitive issues. The result is a $200 billion and deepening trade deficit that is pumping money and technology into the Chinese military-industrial base.

Chinese leaders, well aware of this weakness in the character of many corporate barons, are exploiting the “Goldman Sachs Effect” to the full.  Beijing has many more military projects beyond just anti-satellite lasers under development, and continued American passivity is a critical factor in their strategic plans.  One is left to wonder what will awaken the Bush Administration and the Congress to action if hostile laser fire at our satellites will not.


William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.