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Made in China
Jerry J. Jasinowski
May 20, 2003
Whenever manufacturers get together today, the topic
of conversation invariably turns to China. The threat
of SARS dominates today's headlines, but their greater
concern is one of economics.
With astonishing speed, China is emerging as a global
manufacturing powerhouse. Backed by an inexpensive
labor force, rapidly improving production quality, new
sources of capital, a more dynamic private sector and
a deliberately undervalued currency, China is
supplying a growing range of products to the global
marketplace.
Manufacturers are particularly worried because China's
production is quickly moving beyond the traditional
areas of textiles, toys, and footwear — and into
higher-technology production. Machinery imports from
China are up nearly 50 percent in the last 12 months.
Furniture imports are up over 40 percent, organic
chemicals by 40 percent. The list goes on.
Small manufacturers despair of competing against
low-cost Chinese products. But even successful
multinational corporations express concern and tell us
that, unless things change, it is only a matter of
time before they have to move production to China. The
same story is heard from firms in Japan, Europe and
even many developing countries.
Last year, America's trade deficit with China passed
the $100 billion mark, the first time the world has
seen such a large bilateral imbalance. Imports from
China are six times as large as our exports, and this
bilateral trade deficit is now one-fourth of our
global trade deficit. If these trends continue, within
five years our deficit with China would more than
triple to over $300 billion — surely igniting a blaze
of protectionism.
Protectionism, however, is not the answer. It would
impose a huge tax on U.S. consumers, particularly
lower and middle income families. And it would trigger
cycles of global retaliation that would rebound and
hit the United States hard.
The better alternative is to insist that our bilateral
trade follow market-driven rules that level the
playing field and allow U.S. producers to use their
own formidable competitive advantages. But we need a
strategy to make this work.
First, we must ensure that China complies with world
trade rules. China recently joined the World Trade
Organization (WTO) and made commitments to open its
market and to trade by the same rules as other nations.
We need to hold China to these commitments. Addressing
the rampant abuse of intellectual property rights, the
lack of regulatory transparency and lax trade law
enforcement by local authorities should be high
priorities.
Second, we must press China to end the manipulation of
its currency and allow the yuan/dollar exchange rate
to be determined by the market. This is by far the
largest factor distorting our trade. Since 1994, the
Chinese government has artificially suppressed the
value of the yuan in order to gain a competitive
advantage. In doing so, the Chinese government has
accumulated $280 billion in foreign exchange reserves
— $75 billion last year alone. By some estimates, the
yuan is 40 percent undervalued, giving Chinese-made
products a huge competitive advantage over U.S.
manufactured goods.
Third, beyond exchange rates, we must also ensure that
the development of Chinese industry follows market
principles and does not benefit from direct or
indirect subsidies that distort trade flows. We hear
too many reports from U.S. manufacturers that Chinese
imports cost less than the cost of raw materials. In
our dialogue with China, we must insist that the
prices of traded goods are determined by real economic
costs and not costs artificially set by government
bureaucrats.
Fourth, we must take firm actions to end China's
rampant counterfeiting of U.S. and other products.
Today, China is the epicenter of world counterfeiting,
costing us tens of billions of dollars in lost exports
and the related jobs. Moreover, counterfeit products
pose significant risks to health and safety — such as
in bogus pharmaceuticals or phony brake linings. This
simply cannot be allowed to continue.
Finally, we must undertake a large joint
public-private export trade effort to increase U.S.
exports to China. Others, including Japan and the
European Union, sell much more to China than we do. As
China opens its markets, U.S. companies need to
increase their marketing efforts. But greatly expanded
Commerce Department and other promotion assistance is
also needed, such as the establishment of a network of
American Trade Centers.
Too much is at stake to ignore the China challenge. We
cannot afford to allow our manufacturing base to
shrink to the point at which demands for protectionism
become irresistible. We can have a strong bilateral
trade relationship with China that elevates the wealth
of both countries through reliance on rules that
foster free markets. But we must act now to make it a
reality.
Jerry J. Jasinowski is president of the National
Association of Manufacturers.
Copyright © 2003 News World Communications,
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