CHINESE TRADE WITH THE UNITED STATES

CHINA'S TRADE WITH THE UNITED STATES

In 2007, China surpassed Canada to become the largest exporter to the United States by exporting $322 billion worth of goods to the U.S. that year. In the early 2000s, China replaced Japan as the largest exporter to the United States. Most of the imports to the United States from China arrive at Long Beach port.

China’s trade surplus with the United States rose to $273 billion in 2010, according to U.S. Census Bureau figures, more than three times the level of a decade earlier. The United States’ trade deficit with China was $266.3 billion in 2008, more than half of the U.S. total trade deficit.

The total value of China’s exports and imports in 2010 was $3 trillion, with about 13 percent of that trade between China and the U.S. China’s largest trade partners are: 1) European Union; 2) the United States. China is the U.S.’s third largest market for exports. U.S. exports to China increased 300 percent between 2000 and 2008, growth that was ten times greater than with any other major trade partner.

China sells four times as many goods to the U.S. as the United States sends in return to China. However, China became the top market for U.S. agricultural goods in 2010, purchasing $20 billion in U.S. agricultural exports, according to the U.S. Department of Agriculture.

U.S.-China trade is expected to top $500 billion soon. The the countries have moved from "mutual estrangement to a close exchange with increasingly intertwined interests," Chinese leaders have said. Chinese imports have helped Americans improve their standard of living and created more than 3 million new jobs in the U.S. from 2001 to 2010,Chinese leaders have said.

China’s trade surplus with the United States $232 billion in 2006, $46.4 billion in the first quarter if 2007. In 2005, China’s trade surplus with the United States was $202 billion, one forth the U.S.’s $724 billion trade deficit with the world. China’s trade surplus with the United States is sometimes larger than China’s surplus with the entire world because so many products are exported to the United States but so few things are imported. Trade surplus with the United States was $162 billion in 2004, $124 billion in 2003, $103 billion in 2002, $50 billion in 1998, $39 billion in 1996 and $34 billion in 1995.

In 1994, Washington decided to "de-link" the question of human rights and give China Most Favored Nation trade status. But this really isn't such a big deal considering that 182 other countries have the same privilege and only nine countries in the world have been denied it. The economic crisis in 2008 and 2009 worsened trade relations between the United States and China as the Obama administration accused China of “manipulating” its currency and China blamed the United States for causing the economic crisis and pushing a “Buy America” policy in as part of the U.S. stimulus package. Both countries condemned protectionism while practicing it. Before Hu Jintao visited the United States in 2011, China promised to not favor domestic companies in “innovation” contracts, and to buy legal software (not pirated versions) for government computers.

Websites and Resources

Good Websites and Sources on Foreign Trade: China Today (Chinese Government site) Trade, Export and Import Info chinatoday.com/trade ; IMF Report on Chinese Trade and the WTO pdf file ppl.nl/bibliographies ; U.S. Commerce Department’s Office of China Economic Area (OCEA) export.gov/china ; Office of the U.S. Trade Representative ustr.gov ; Foreign Companies: Foreign Investment in China, Rules, Regulations, Procedures escapeartist.com ; Foreign Direct Investments, What the Figures Don’t Tell Us dur.ac.uk/resources ; China Today (Chinese Government site) Investments Info and Links chinatoday.com ; 2008 Library of Congress Report on Sovereign Wealth Funds pdf file fas.org/sgp/crs ; Wikipedia article on China Investment Corporation Wikipedia ; New Bureau of Asia Report in Understanding China’s Sovereign Wealth Funds pdf file nbr.org/publications

Business and Economics: Business Directory for China business-china.com ; U.S. China Business Council uschina.org ; China Business Services Blog chinabusinessservices.com/blog ; Economic and Business News Related to China jlmpacificepoch.com ; Small and Mid Size Businesses in China english.sme.gov.cn ; Asian Development Bank adb.org/PRC ; World Bank China worldbank.org ; International Monetary Fund (IMF) on China imf.org/external/country/CHN ; China Economic Information Office cei.gov.cn ; U.S. Commerce Department’s Office of China Economic Area (OCEA) export.gov/china ; Statistics: China’s National Bureau of Statistics stats.gov.cn/english ; Chinability Blog chinability.com/ ; Nationmaster nationmaster.com ; Economic and Business News The Economist on China economist.com ; China Economic Net en.ce.cn ; China Economic Review chinaeconomicreview.com ; Far East Economic Review feer.com ; Economic and Business News Related to China jlmpacificepoch.com ; China Daily Coverage of Economic Issues chinadaily.com.cn ; Financial Times China ft.com/world/asiapacific/china ; China Perspective thechinaperspective.com ; China Economics Blog china-economics-blog.blogspot.com

Links in this Website: CHINESE BUSINESS Factsanddetails.com/China ; CHINESE STOCK MARKET Factsanddetails.com/China ; CHINESE BANKS Factsanddetails.com/China ; CHINESE RETAIL BUSINESSES Factsanddetails.com/China ; Factsanddetails.com/China ; CHINESE TOURISM BUSINESS Factsanddetails.com/China ;CHINESE TRADE Factsanddetails.com/China ; CHINESE TRADE WITH THE U.S., EUROPE AND JAPAN Factsanddetails.com/China ; FOREIGN COMPANIES AND INVESTMENT IN CHINA Factsanddetails.com/China ; BUSINESS CUSTOMS IN CHINA No. 1 Factsanddetails.com/China ; BUSINESS CUSTOMS IN CHINA No. 2 Factsanddetails.com/China ; GLOBAL ECONOMIC CRISIS OF 2008 AND 2009 IN CHINA Factsanddetails.com/China ; BASIC ECONOMIC INFORMATION ON CHINA Factsanddetails.com/China ; MACROECONOMICS AND ECONOMIC POLICY IN CHINA Factsanddetails.com/China ; THE YUAN, FOREIGN RESERVES AND SOVEREIGN WEALTH FUNDS IN CHINA Factsanddetails.com/China ; CHINESE REGIONAL ECONOMICS Factsanddetails.com/China ; CHINA AND ASIA RELATIONS Factsanddetails.com/China ; CHINA AND JAPAN RELATIONS Factsanddetails.com/China ; CHINA AND INDIA RELATIONS Factsanddetails.com/China ; CHINA, RUSSIA, EUROPE AFRICA AND THE MIDDLE EAST Factsanddetails.com/China ; Factsanddetails.com/China ; CHINA AND UNITED STATES Factsanddetails.com/China ; AMERICAN AND CHINESE POLICY Factsanddetails.com/China ;UNITED STATES, CHINA AND SPIES Factsanddetails.com/China

American Products Sold in China

The United States, it has been said, has little to sell back to China other than “Boeing and beef.” Top products imported from the United States to China include aircraft, jet engines, power generation equipment, electrical machinery, medical equipment, soybeans, corn, wheat, distiller’s grain, other grains, seed and fruit oils, automated data processing machines, vacuum/gas tubes and telephone equipment. China is the largest buyer of American oil seeds, hides and animal skins, raw cotton, copper, non ferrous metals, wood pulp and semiconductors. The main products shipped in containers are waste paper, scrap metal and cotton.

The Chinese have become a savior of sorts for American agriculture. Not only are they buying lots of American corn, wheat and soy beans and other crops, their demand is driving up the prices for these items, plus they create new niches for American farmers to fill such as the one filled by Wisconsin ginseng producers and Midwestern chicken feet producer. On gaining leverage over China in battle over tariffs using chicken feet, the economist Paul W. Aho said, “We have these jumbo, juicy paws the Chinese really love, so I don’t think they are going to cut is off.”

In 2003, China responded to criticism by the Bush administration over the widening trade deficit by ordering more U.S. goods, including Boeing jets, G.E. jet engines, Cadillac cars and grain. GE does exports $3.5 billion worth of goods---including large turbines and aircraft engines---each year to China. As Vice President, Al Gore traveled to China to preside over China's agreement to buy $685 million worth of Boeing passenger jets.

U.S. exports to China increased 32 percent in 2006 for, $41.8 billion o $55.2 billion. The United States exports $2.5 billion in agricultural products, to China annually. Empty 12-meter containers are transformed into grain carriers with some sheets of cardboard and a few planks of wood. The export of medical equipment from the United States to China is growing at a clip of around 30 percent a year. Chips that are made in California are shipped to China to be installed in computers and cell phones that are shipped back to the United States. More high tech stuff would no doubt be exported from the United States to China except there are tight controls on the export of high tech stuff with military applications to China.

Many of the products that China imports from China tend highly-engineered big ticket items such as planes from Boeing locomotives from General Electric nuclear power plants from Westinghouse (now owned bu Toshiba), medical and scientific equipment, processing machines,, parts for oil and gas field machinery,

Chinese Products Sold in the United States

The United States imports between 40 percent and 60 percent of its consumer products from China. Wal Mart and Sears buy large amounts of Chinese consumer goods. In 2003, Wal-Mart spent $15 billion on Chinese products, nearly one eighth of all the products exported by China to the United States and more than were imported by Germany or Britain.

In the mid-1980s the China's biggest exports to the U.S. were gasoline and fireworks. Now China sells the U.S. plastic goods, bicycles, answering machines, cellular telephones, sporting goods, winter clothes. stuffed animals, sneakers, shirts, steel pipes, tools shirts, and Chinese-made Swiss army knives.

In 1995, China supplied the U.S. with 51 percent of imported toys and sporting goods, 48 percent of imported shoes and 24 percent of imported radio. In the early 2000s The U.S. imported $5.4 billion worth of toys.

See Wal-Mart

Chinese Exports and the Demise of the U.S. Furniture Industry

Andrew Higgins wrote in the Washington Post, “The ruin caused to U.S. furniture manufacturing by a tsunami of Chinese goods is beyond dispute. Since the 1990s, hundreds of factories in North Carolina, Virginia and other furniture centers have closed as production moved offshore, often to Dongguan. In 1992, U.S. furniture imports from China totaled $129 million, according to Census Bureau data. By 2003, they had ballooned to $5.28 billion---an increase of nearly 4,000 percent. That was when a small group of American manufacturers banded together to try and stop at least some of the rot. [Source: Andrew Higgins, Washington Post, May 23, 2011]

Furniture workers in Dongguan, a throbbing industrial city near Hong Kong, earn about $170 a month, compared with less than $80 in Vietnam. Their American counterparts make about $12 an hour. To help the American furniture producers the United States imposed tariffs on import to the U.S. of Chinese furniture. See Below

How China Unfairly Bests the U.S.

China's manufacturing advantage over the U.S. is actually due to a complex array of unfair trade practices, all of which are illegal under free-trade rules. Peter Navarro wrote in the Los Angeles Times that the main problem with the sluggish American economy is a “massive, persistent trade deficit---most of it with China---that cuts the number of jobs created by nearly the number we need to keep. [Source: Peter Navarro, Los Angeles Times, June 21, 2011, Navarro is a business professor at UC Irvine, a CNBC contributor and the coauthor with Greg Autry of "Death by China: Confronting the Dragon---A Global Call to Action."]

America's trade deficit is costing us close to 1 percent of GDP growth a year at a loss of almost 1 million jobs annually. Every business day, American consumers buy $1 billion more in Chinese exports than American manufacturers sell to China, and China alone accounts for about 70 percent of America's trade deficit in goods, excluding oil imports. This "Chinese import dependence" has led a democratic America to owe the largest communist nation in the world more than $1 trillion, while China holds more than $3 trillion in foreign reserves, most of them in U.S. dollars.

So how can we eliminate, or at least drastically reduce, our trade deficit with China? For starters, we must puncture the myth that China's main manufacturing edge is solely its cheap labor. Indeed, while low labor costs are a factor, when you carefully research the biggest source of China's manufacturing advantage, it is actually a complex array of unfair trade practices, all of which are illegal under free-trade rules.

The most potent of China's "weapons of job destruction" are an elaborate web of export subsidies; the blatant piracy of America's technologies and trade secrets; the counterfeiting of valuable brand names like Nike and Chevy; a cleverly manipulated and grossly undervalued currency; and the forced transfer of the technology of any American company wishing to operate on Chinese soil or sell into the Chinese market.

Each of these unfair trade practices is expressly prohibited both by World Trade Organization rules as well as rules established by the U.S. government, e.g., the Treasury Department has sanctions against currency manipulation (which, alas, the Obama administration refuses to use against China despite campaign promises to do so).In addition, there is the Chinese Communist Party's incredibly shortsighted willingness to trade tremendous environmental damage and a surfeit of workplace deaths and injuries for a few more pennies of production cost advantage, all because of ultra-lax regulatory standards.

The second myth we must expose if we are to ever reverse the job-killing trade deficits we now run with China is the idea that free trade always benefits both countries. That doesn't hold true if one country cheats on the other. Instead, when a mercantilist China uses unfair trade practices to wage war on our manufacturing base, the American economy is the big loser.

China Circumvents United States Trade Restrictions

Reporting from Dongguan in southern China, Andrew Higgins wrote in the Washington Post, “China’s export juggernaut is not unstoppable: Just ask Lawrence Yen, president of Woodworth Wooden Industries. His factory here in southern China used to ship 400 containers of bedroom furniture to the United States each month. It now sends 60.That is just what Yen’s struggling American competitors were hoping would happen when, back in January 2005, the Commerce Department slapped import tariffs on Chinese-made beds, nightstands and related wares. [Source: Andrew Higgins, Washington Post, May 23, 2011]

What happened next, though, was not part of the plan: Yen opened a factory in Vietnam and began exporting to the United States from there. Others did the same. He is now building a big plant in Indonesia and hopes to sell even more to the United States. America’s own furniture industry, said Yen, “can never compete with Asia.” The result: Imports now account for about 70 percent of the U.S. market for beds and similar items, up from 58 percent before Washington intervened to try and protect domestic manufacturers from Chinese “dumping,” or the export of goods at unfairly low prices.

The trade concerns have led to growing calls for tougher action from Washington to stem the tide and protect U.S. jobs. But do tariffs work? In the case of bedroom furniture, they’ve clearly helped slow China’s export machine. In 2004, before tariffs went into force, China exported $1.2 billion worth of beds and such to the United States. The figure last year was just $691 million. Over the same period, however, imports of the same goods from Vietnam---where wages and other costs are even lower than in China---have surged, rising from $151 million to $931 million. The loss of jobs in America, meanwhile, only accelerated. The number of Americans now employed making bedroom furniture is less than half what it was when the tariffs began.

“This whole saga is a perfect example of good intentions gone completely haywire,” said Keith Koenig, president of City Furniture, a big Florida-based retailer and critic of the tariffs. Like many retailers, he relies on imported goods, which are cheaper than those made in America. The only Americans getting more work as a result of the tariffs are Washington lawyers, who have been hired by both U.S. and Chinese companies. Their work includes haggling each year over private “settlement” payments that Chinese manufacturers denounce as a “protection racket.”

Fearful of having their tariff rates jacked up, many Chinese furniture makers pay cash to their American competitors, who have the right to ask the Commerce Department to review the duties of individual companies. Those who cough up get dropped from the review list. “You pay for peace,” said Yen. David Cai, manager of the Dongguan Huada Furniture Co., likens the process to a shakedown: “It is like the mafia: You buy protection.” He, too, has slashed bedroom furniture exports to the United States.

How much gets paid in “settlements” each year depends on negotiations with Washington lawyer Joseph Dorn, who represents American furniture makers who first petitioned for the anti-dumping tariffs. Dorn said, “It is wrong for Chinese companies to criticize” the practice, as they “came up with the idea” and “voluntarily agreed” to pay.

Trade Issues Between the United States and China

The United States and China have exchanged accusations of dumping for years and imposed tit-for-tat duties. The United States has accused China of intentionally boosting its trade surplus by promoting exports while holding down imports and running a predatory trade policy based on keeping the value of the yuan artificially low to stimulate export-led growth.

The United States has a number of trade issues with China. It wants greater access to Chinese markets; for China to do more to crack down on piracy and counterfeiting; for China the end subsidies to unprofitable state-owned companies; and for the value of the yuan be allowed to rise so Chinese goods aren’t so cheap. The United States lost 3 million industrial jobs between 1996 and 2006. Many American politicians and workers blame China.

Worried about the consequences of a trade battle with the United States, China tries to be accommodating to the United States. China argues that it is American demand for a wide range of products that feeds America’s trade deficit with China not the policies of the Chinese government. Beijing also argues that as this stage of its development it needs exports to generate growth and when it economy has sufficiently grown it can import more and generate more domestic demand.

The United States claims that China has not fulfilled its promise to import more U.S. corn. soybeans, fruit and cotton since joining the WTO. China has restricted soy bean and apple imports to help local farmers. The limit on soybeans allowed Chinese farmers to earn twice as much as they would have if American soybeans were allowed in. China also subsidized farmers that grow for export.

The United States has complained that Chinese regulations have kept American insurance companies, express delivery and banking services from competing in China. The United States has also placed tariffs on tins like crawfish, garlic and auto brakes to protect American companies and farmers from Chinese imports.

Chinese companies complain they are denied certain products and put up with more regulations than their American and European counterparts because of security concerns. The United States has limited the sale of some technology exports for national security reasons. There is ban on some high-tech goods that have potential military applications such as aircraft parts, computer chips and machine tools.

Trade Wars Between the United States and China

In March 1995, the United States planned to slap China with more than $1 billion in tariffs in respond to Beijing’s refusal to crack down on widespread piracy on American software, movies and music. The punitive tariffs were to be as high as 100 percent.

In September 2005, the United States announced that it would reimpose import quotas on some types of clothing---items made with synthetic filament threads and bras, girdles and pant girdles---in response to a surge in shipment of these items that damaged local industries producing the same things.

In December 2005, the United States imposed tough trade sanctions against state-owned Chinese companies accused of aiding Iran’s missile and chemical programs.

In 2006, members of U.S. Congress sponsored legislation that would impose a 27.5 percent penalty tariff on all Chinese imports to the United States unless China stopped manipulating its currency.

China has accused the United States of 1) using bullying tactics on trade issues, 2) protecting American companies while criticizing China for protecting its companies, 3) and imposing sanctions related to issues it promised to talk about. In May 2007, Chinese Vice Premier Wu Yi essentially told the United States during trade negations, “If you want a fight, let’s fight.”

In February 2007, the U.S. Treasury announced it would set up a telephone hotline with the Chinese Vice Premier in case there as some kind of economic problem that needed an immediate response.

In December 2007, China and the United States held high level trade talks---the China-U.S. Strategic Economic dialogue---in China. The two countries made a number of trade agreements and signed agreements of food and product safety. China agreed to abolish tax breaks that the United States complained gave a large variety of Chinese industries competitive advantages.

Leading the U.S. delegation was Treasury Secretary Henry Paulson, who had visited China several times in the preceding two years, demonstrating the importance of the issue to American interests. Leading the Chinese delegation was Vice Premier Wu Yi, regarded as the second most powerful woman in the world, demonstrating the importance of the issue to Chinese interests..

In May 2008, major Chinese steel pipe makes were hit with 700 percent tarriffs from the United States in retaliation for dumping , unfair pricing and government subdivides given to Chinese manufacturers.

United States, China, and the WTO

United States, WTO complaints, See Pirating

In 2007 The United States filed WTO complaints saying that China unfairly limited the distribution of foreign videos and other products and the government provided companies with subsidies that allow them to export products more cheaply products. In July, the United States insisted that China be brought to a WTO hearing on the use of industrial subsidies which U.S. officials said violated global trading rules. State subsidies in steel, paper, information technology and other industries, Washington claims, allows Chinese companies to sell their products for cheaper prices than they otherwise might, giving them an unfair advantage in export markets.

The decision by the United States to take more drastic measures occur after talks between Washington and Beijing failed make much headway on the matter and the United States had a $20 billion trade deficit with China in May 2007, a third of the U.S. total trade deficit,

In September 2007, China filed a WTO complaint against the United States for antidumping duties the United States imposes on Chinese paper imports. It was the first initiated by Beijing against Washington.

In October 2007, the United States filed a WTO complaint against the China for its limits on imports of products of copyright-intensive industries scuh as films, music and books,

United States, China, Trade and Textiles

As part of an agreement between China and the United States that paved the way for China to become a member of the WTO, the United States was given the power to set limits on Chinese goods exported to the United States. This agreement had the biggest impact on the textile and garments industry.

In 2002, the United States lifted quotas on certain textiles such as baby clothes and robes. China’s share of these products increased from 11 percent in 2001 to 55 percent at the end of 2003.

In November 2003, the United States announced limits on Chinese-made bras and other textiles. In October 2004, the United States imposed quotas on sock imports from China to help protect sock producers at home.

In May 2005, responding in part to the European Union textile crisis (See Below), the United States announced it would set limits on the amount of clothing that China can export to America in the form of restrictions on certain kinds of clothing cotton and fiber shirts and combed cotton yarn.

Trade Issues Between United States and China in the Late 2000s

In June 2009, the United States and the European Union filed separate unfair-trade suits against China for favoring domestic industries by limiting exports of materials such as magnesium, bauxite and silicon needed to produce steel, aluminum and other products.

The United States government has accused China of dumping auto parts and chickens and subsidizing some paper products giving companies that produce these goods an unfair advantage. Complaints have also been filed by the United States over the sale of Chinese electric blankets. In December 2008, the United States filed a complaint with the WTO that China aided Chinese brands in a number of sectors---textiles, electronic appliances, household good--- by providing them with subsidies such as cash grants, soft loans and research funding. The Chinese government protested the complaint.

Trade Controversy over Media, Books and Films

In August 2009, the WTO ruled in favor of the United States and said that China must ease its tight controls of foreign films, music and books entering the country. Before the ruling Beijing funneled all foreign media through state-owned companies. The ruling, which was upheld by the WTO’s top arbitrator in December 2009, is expected to have a significant affect on a wide range of media entering China.

In February 2009, the WTO rule in the United States’s favor in copyright and trademark case involving films music and books.

Trade Controversy over Auto Parts, Pipes and Tires

In February 2008, the WTO ruled against China in a complaint filed by the United States and the European Union on auto parts. The WTO found China guilty of breaking trade rules by taxing auto parts at the same rate as foreign-made cars. In August China said that all imported auto parts would be taxed the same, changing a rule that required foreign auto makers to buy more than 40 percent of the components used in any Chinese-made vehicle from local suppliers or pay double the usual tariffs on imported parts.

In September 2009, the United States placed tariffs on all car and truck tires from China primarily for domestic political reasons: to save American jobs and to appease American unions, whose support Obama needed on health care reform. In recent years the United States claims China has been unfairly flooding the U.S. markets with cheap tires. Many criticized the tariffs as a protectionist move by the United States.

In October 2010, the WTO rejected Chinese claims and sided with the United States in the case of antidumping duties on steel pipes, off-road tires and woven sacks. In December 2010, the WTO rules against China on tire duties saying the United States was entitled to impose extra safeguards duties in on Chinese tires.

In June 2008 the U.S. International Trade Commission decided to impose 100 percent tariffs on steel pipes from China in the grounds the pipes were sold for artificially low prices because their production was subsidized by the government. In December 2009 new duties were placed on the imports of steel pipes based on complaints by the United Steeleworkers that Chinese steel companies benefitted from government subsidies were dumping pipes at unfairly low prices.

In October 2009, China imposed stiff antidumping tariffs on nylon imports in the United States and said that it was considering filling dumping charges with the WTO against the big three U.S. auto makers---GM, Ford and Chrysler---on the grounds their prices were kept artificially low by subsidies from the U.S. government.

Yuan-to-Dollar Exchange

Keith B. Richburg wrote in the Washington Post, “While it is widely accepted that China controls the value of its renminbi, also called the yuan, Chinese and foreign economists note that the currency has been appreciating steadily since 2005, by about 25 percent. That is generally in line with a pledge by Beijing’s leaders in 2005 to allow the yuan to appreciate about 5 percent a year. That strengthening of the yuan was stopped in 2008, when the global economic crisis hit, but resumed last year. [Source: Keith B. Richburg, Washington Post October 19, 2011]

Many U.S. economists say the yuan is still undervalued, perhaps by as much as 40 percent. But Chinese officials and outside experts say China has its own domestic worry that too rapid an appreciation would disrupt hundreds of thousands of businesses that rely on exports. China will appreciate its currency on its own timetable, they say. In any event, they said, the yuan-to-dollar exchange rate did not cause America’s recession.

“The renminbi exchange rate is relatively low for now and is not the major cause for the economic downturn in the U.S.,” said Shi Yinhong, director of the Center on American Studies at Beijing’s Renmin University. “The problem for the U.S. is they owe China so much debt,” he said, referring to the Chinese government’s vast holdings of U.S. Treasury bonds, estimated at about $1.5 trillion.

Yuan and U.S. Growth

William Pesek of Bloomberg wrote: Hypocrisy is the defining element in all the wrangling over China’s currency. The debate seems deceptively simple: As China booms and America implodes, how much blame does Beijing’s undervalued currency get for chronic U.S. unemployment? China says none -- it’s a developing nation and needs to create the hundreds of millions of jobs to keep the peace and satisfy its citizens. A vocal chorus in Washington says China’s trade advantage hogs all the growth. [Source: William Pesek, Bloomberg, October 11, 2011]

The trouble with these disparate views is that they are both partly correct. The yuan does hinder growth, as Federal Reserve Chairman Ben Bernanke points out. It’s “blocking what might be a more normal recovery process in the global economy,” he said last week. Meanwhile, the risks of social upheaval in China are rising. Subsidizing exports is an obvious way to avoid it.

The real question is: What can Americans do? Three things: Blame the Chinese and Americans who have prospered from cheap Chinese labor, focus on trade access and rediscover their entrepreneurial soul.

Sure, Congress can slap tariffs on Chinese goods. More success may come from naming and shaming the politicians, business leaders and companies making piles of money by moving jobs to China and, out of the other side of their mouths, demanding lower taxes and denouncing President Barack Obama as an economic simpleton. The U.S. long championed the globalization model that it now blames for its woes.

“It’s pretty evident that a weaker dollar is part of U.S. policy, so they are hardly in a position to throw the first stone,” says Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore. “Even though China overtly manages its currency, a stronger yuan isn’t going to bring back the jobs American companies willingly exported.”

Market access, not exchange rates, is the critical issue. If the yuan jumped 30 percent tomorrow, Germans would sell more cars, French more wine and cheese, Italians more shoes and handbags, Australians and Canadians more raw materials. The U.S. would sell China more soy, corn, cotton and apples. What kind of wealth does this trade create as companies move jobs to China?

Here, it’s worth noting a recent report from the San Francisco Federal Reserve Bank. Economists Galina Hale and Bart Hobijn argue that “Made in China” isn’t taking over U.S. consumption as much as believed. Of every dollar U.S. consumers spend on a Chinese-made product, about 55 cents pays for services in the U.S. Think about it, when you spend $90 for a pair of Nike sneakers, only a fraction of it flows to China and even less to workers there.

The real issue is U.S. companies creating jobs at home and gaining access to Chinese markets. It’s challenging for U.S. corporations to compete in China, bid for contracts and protect intellectual property. China lavishes advantages and subsidies on national champions and limits access of foreign financial firms. Corruption complicates business. Valid concerns all around and none of them hinge on the dollar-yuan rate. If the U.S. could compete on even terms, there would be ample money to be made in China and jobs would be created back home. Sadly, Congress is more obsessed with exchange rates than trade talks that might actually boost job growth.

China’s ascent should spur and motivate the West. Earlier this year, Obama called China’s rise another “Sputnik moment,” recalling how the Soviet Union’s 1957 space launch unnerved America. The U.S. needs to relocate the entrepreneurial passion that made it the biggest economy and created some of the best companies...It’s hypocritical to blame China for what ails America’s economy. If you think currency rates alone are going to restore U.S. prosperity, think again.

Cheap Yuan, Closed Markets and the “Hollowing Out” of American Manufacturing

Keith B. Richburg wrote in the Washington Post, Is China’s cheap currency responsible for the “hollowing out” of American manufacturing and the loss of jobs” Many economists here dispute the premise. The loss of American manufacturing jobs is a natural progression, many economists said. As China becomes more expensive---because of inflation, wage increases and the higher value of the yuan---they say, it also is losing out to cheaper countries such as Vietnam and Bangladesh. [Source: Keith B. Richburg, Washington Post October 19, 2011]

“In a global economy, your competitive edge is changing all the time,’said Xu Xiaonian, a professor of economics and finance at the China Europe International Business School in Shanghai. “We are losing jobs to Vietnam and other Asian countries. Even in China, we have to keep moving up the value chain.”

The issue of further opening China’s markets to U.S. products and services is also a long-standing one, particularly for the American business community here. Several areas---such as financial services and insurance---remain largely closed to American and other foreign players. American car companies here must partner with a Chinese automaker. The government imposes a quota of 20 foreign films a year that can be shown here, a restriction Hollywood has long battled.

“U.S. businesses seeking to penetrate the China market face unwelcoming policies and regulatory hurdles at several levels,” AmCham-China, the American Chamber of Commerce in China, said in its 2011 white paper. “U.S. businesses face obstacles to entering the China market and to expanding their operations in competition with favored domestic and state-owned enterprises.”

Some Western economists said opening China’s markets is a far more important issue than the value of the currency. Many Chinese officials, academic experts and journalists, however, point out that Chinese companies are often barred from investing in U.S. sectors considered sensitive because of national security concerns. Political opposition and mandatory U.S. national security reviews have led some Chinese companies to withdraw their bids for struggling American companies.

Trade Cases Involving China and the United States

Keith B. Richburg wrote in the Washington Post, The United States has a formidable new platform for pressing China on its markets---the World Trade Organization. According to the U.S.-China Business Council, the United States has brought 11 cases against China to the WTO and won eight of those. China settled four cases before a decision, and the WTO ruled in America’s favor four other times. Three cases are pending, including one that would open China’s credit card market to foreign players such as Visa, MasterCard and American Express, which now must be co-branded with China UnionPay. [Source: Keith B. Richburg, Washington Post October 19, 2011]

The question of market access is intertwined with the complaint about intellectual property. About 70 percent of member companies responding to the American chamber’s business climate survey this year called China’s enforcement of intellectual property rights either “ineffective or totally ineffective.” The concern has been heightened by China’s new policy of “indigenous innovation,” requiring that U.S. companies register their intellectual property and original trademarks in China---and prompting fears that Chinese companies will steal the technology and then squeeze out their American partners.

China is well known as the home of counterfeit products---from imitation iPads and iPhones to fake software to pirated CDs and DVDs---and successive U.S. administrations have engaged in lengthy negotiations with Chinese officials, who constantly promise to crack down. The question is always whether the government could be doing more to enforce its own laws.

The issue of computer hacking is also complex. A series of high-profile cyberattacks, including against Google in 2010 and against computers at the International Monetary Fund this year, are believed by many experts to have originated from computers in China. But there is no evidence suggesting that the Chinese government was involved.

TPP Makes China Nervous

In November 2011, Keith B. Richburg wrote in the Washington Post, “With the Obama administration’s high-profile pivot toward Asia---pushing for a new free trade agreement with eight other countries and securing military basing rights with Australia---China is feeling at once isolated, criticized, encircled and increasingly like a target of U.S. moves. [Source: Keith B. Richburg, Washington Post, November 16, 2011]

The Chinese response has been growing nervousness toward U.S. intentions in the region. Chinese officials and analysts seemed somewhat taken aback by Obama’s tough words in Hawaii, after the U.S. president said Beijing needed to “play by the rules” in international trade. Afterward, a senior Chinese foreign ministry official issued a retort, saying, “if the rules are decided by one or several countries, China does not have to observe them.”

The official was apparently referring to the U.S. push for a new free trade pact, called the Trans-Pacific Partnership, or TPP, which includes eight other Pacific rim countries, but pointedly not China. Beijing sees the development of the TPP as a political move, to create an American-dominated counterweight to a rival trade bloc of Southeast Asian countries plus China, Japan and South Korea, known by the acronym ASEAN Plus Three.

Added to the ongoing U.S. military presence in Northeast Asia, with bases in Korea and Japan, the Australian agreement extends American influence to Southeast Asia at a time when several countries of the region have felt rattled by China’s growing assertiveness. Beijing has been making more territorial claims on long-disputed areas of the South China Sea, and several countries in the region---notably the Philippines and Vietnam---have sought closer ties with the United States as a hedge against what they see as China’s aggressiveness. In an editorial in Xinhua, the state news agency, China criticized the U.S. move as increasing tensions in the area.

Add on top of those moves Obama’s continued criticism of the value of the Chinese currency, the renminbi, or yuan, and many Chinese analysts said they fear that after several months of eased relations, the two countries may be once again heading for a new period of tension. “President Obama wants to intensely push on all fronts,” said Zhu Feng, a professor at Peking University’s School of International Studies. “It’s very, very depressing. Of course, it’s targeting China. It’s a new East Asian strategy.”

Zhu said he feared the Chinese government would react to feeling isolated---particularly if the United States pursues the TPP free trade agreement with Australia, Brunei, Chile, New Zealand, Peru, Malaysia, Singapore and Vietnam without China being invited to join. And the one area where Beijing could react is economically, where the United States and China had lately been acting more cooperatively, even as they continued to disagree over the question of currency valuation.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2008 Jeffrey Hays

Last updated April 2012

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