Port Failure

Now that the Dubai ports crisis has been resolved, it’s important for people to understand how it arose and why.

The thing that struck me from the first moment I heard about it is the gross political ineptness of those involved in the process. A child could have seen that allowing a state-owned Arab company to buy control of some of our major port facilities was political dynamite in the wake of 9-11. At the very minimum, the issue should have been handled with kid gloves and elevated to the highest political levels as soon as possible.

Apparently, this was never done. It seems not to have occurred to anyone involved with vetting the decision that this was anything other than a purely routine matter. I find such obtuseness to be utterly unfathomable.

Yet this fits a pattern that we have seen since the earliest days of the Bush administration. It has only been invisible up until now because so many members of the media have bought the idea that Karl Rove is a political genius, whose tentacles extend into every decision the administration makes, no matter how mundane.

The truth, quite obviously, is not even remotely true. Clearly, Rove had no advance knowledge of the ports decision because I am certain that he would have seen the extraordinary political danger in allowing this thing to go through, regardless of what he thought about the substance.

Therefore, we must conclude that the real failure here is with the Bush administration’s policy development process. Apparently, it is so broken or atrophied from lack of use that it was incapable of dealing with a highly controversial issue or even communicating the basic facts to those who ultimately had to take responsibility for it.

Equally disturbing is President Bush’s decision to offer unequivocal support for the ports deal before he could possibly have absorbed all its details or ramifications. It is simply incredible that a president who has never vetoed a single bill, ever, would declare his intention to exercise his very first veto on a bill to block the deal that, in all likelihood, would have passed Congress with a veto-proof majority.

And I say all this as someone who agrees with Bush on the substance! It was important for the deal to go through, but not for any reason I ever heard out of the White House. It had nothing to do with insulting an ally in the war on terror, the United Arab Emirates. It had everything to do with exchange value of the dollar.

There is a reason why the Treasury Department chairs the group that oversees things like the ports deal. It is called the Committee on Foreign Investments in the United States, and was established in 1975. Under the Exon-Florio bill in 1988, it has the power to block foreign takeovers of U.S. businesses if they would threaten national security.

Having worked at the Treasury Department for some years, I know that its primary concern is how to finance the federal government. Virtually all of the money to pay for everything the government does must flow through the Treasury Department in the form of taxes or borrowing.

With a massive federal deficit estimated at $337 billion this year, the Treasury knows that foreign inflows of capital are essential to buy all the Treasury bonds, bills and notes that must be sold. It doesn’t really matter whether foreigners buy such securities directly. As long as they buy any dollar-denominated asset, it helps fund the deficit.

The Treasury is also concerned about the trade deficit, because that must also be covered by foreign capital inflows. Without them, the dollar would collapse, reducing foreign investment, raising the cost of foreign goods and reducing the standard of living for all Americans.

Since we have a large trade deficit, that means foreigners have insufficient appetite for American goods and services. Consequently, they must be allowed to buy American assets — such as companies, buildings and land — or else their dollars will become worthless to them, causing such dollars to be dumped in favor of euros, yen or other currencies.

This explains why President Bush and the Treasury were so adamant about allowing the ports deal to go through. But it still doesn’t explain why no one in a position of authority felt compelled to explain this fact to the American people or why supposedly smart political people were oblivious to the political implications of the deal.

Like the Harriet Miers nomination to the Supreme Court, the ports debacle has exposed Bush’s political tin ear. No wonder his poll ratings stink and members of his own party are now running away from him as fast as they can. This doesn’t bode well for Bush’s agenda in the dwindling days before he leaves office.