America’s unfair share

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America’s unfair share

The United States may feign that it is a champion of free and fair trade, but it can be more protectionist than any other country. After World War II, the United States made the Berry Amendment that required the Defense Department to give preference in military procurements to domestically produced or homemade products as part of efforts to protect the domestic industry at times of war and during unusual and compelling urgency.

But the law proved to be ironic. In 2001, the U.S. Army announced a black beret would become standard headgear for American servicemen. When there was no company that could immediately supply 4.7 million berets, the Pentagon placed orders in China and Sri Lanka.

Procurement of the black beret from contractors outside the United States immediately created a political issue, with legislators saying the move violated the Berry Amendment. Washington came under criticism for claiming that berets were a defense procurement.

Strategic commodities are vital items that the country must ensure steady supply of in times of war and contingency. But the category can be ambiguous and contentious. In 1990s, notebook computers were listed as strategic commodities, using the argument that they could be used in missile development.

Some items such as metal, food, and oil are indispensable during times of war. A stealth jet will be of no use if there is no gasoline.

Japan launched the Pacific War in protest to U.S. sanctions on oil. Oil is not only important economically but also strategically. The price of the staple is on a downward spiral. Dubai crude, which hovered at $111 per barrel in June, is on the point of sinking under the $50 threshold.

The shale revolution - a combination of horizontal drilling and hydraulic fracturing - has turned the United States from a heavy consumer of oil and gas to a major producer. Faced with heavy competition and threats to their rank, oil producers in the Middle East decided to continue pumping out supplies at current levels. A Saudi minister said the country won’t cut output even if crude prices dip below $20.

The free fall in oil prices is reshaping the international landscape. First, Russia, which wielded enormous power with oil and natural gas as its major weapon, is now teetering on the brink of bankruptcy. Moscow may have to fold its grand “pivot to Asia” ambition through development of natural resources in Siberia. North Korea may have to rethink courting Russia in place of China.

Second, the United States has regained its superpower rank. The shale boon that added millions of barrels in U.S. oil and gas production has been the major driver in U.S. recovery. Its gross domestic product in the third quarter grew 5 percent year-on-year - a pace not seen over the last 11 years.

The U.S. economy is expected to expand by 2 to 3 percent for the next few years. It is drawing huge foreign investment. BASF of Germany pledged a $1 billion investment in shale oil reserves in the United States for the next four years. Its status as single global hegemony may be safe for some time.

Third, thanks to shale riches, the United States can now push ahead with its pivot to Asia policy. President Barack Obama announced regional focus to Asia in 2012 amid a battle of influence with China.

But the pivoting proved to be mostly words. Washington could not redirect its attention due to a preoccupation with the never-ending Middle East crisis. The safety of the Strait of Hormuz, where about 35 percent of oil sea cargo passes, is of great importance to the United States. Now that the United States can afford to rely less on oil from the region, it can get on with its policy toward Asia.

Fourth, the shale boom can also improve ties between the United States and China. The United States is likely become the predominant producer of shale gas and China its biggest client. The two countries have been waging a war of tension over energy resources. The U.S. media has been criticizing China for gobbling up world gasoline reserves. But now that the United States is on the supply end, it may have to thank Chinese insatiable appetite for energy. South Korea, also a major oil importer, will also benefit from U.S. oil and gas supplies.

Finally, the Pentagon can save enormous amounts from cheap oil prices. About 130 billion won ($118.6 million) worth of gasoline is needed to keep an F-15 jet in the air for an hour. A K-1 tank can run just 400 to 500 meters (1,312 to 1,640 feet) on one liter (0.26 gallon) of oil. Gas mileage is one 20th of what a sedan uses. The Defense Department has an army of these oil-sucking machines. It could save big from the oil prices that have more than halved from six months ago. Online journal Defense One estimates the department could save billions of dollars immediately from the recent oil price falls.

Saving in defense spending thanks to soft oil prices could mitigate calls for withdrawal or a scale-down in U.S. forces in Korea. Washington demanded Seoul to share a bigger burden in defense spending, citing its cut in the federal budget. The next time Seoul sits down with Washington for military talks, it can do the same, citing improved fiscal conditions in the United States thanks to shale money.

JoongAng Ilbo, Dec. 26, Page 32

The author is a senior writer on international affairs at the JoongAng Ilbo.

by Nam Jeong-ho

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