WorldCity Business Magazine

China-U.S. trade turbulence on the rise

by Jeffrey Sparshott

2005 should be an eventful year for the U.S.-China relationship. There are plenty of areas for conflict from intellectual property theft to currency manipulation to trade imbalances. The Bush administration is moving delicately on currency, is cataloging Chinese rip-offs of American products and has or is in the process of throwing up a series of barriers to Chinese products.

Buying a bedroom set at Rooms-to-Go? The wooden stuff from China, worth $1.6 billion in 2003, is taking a hit through new antidumping duties. If you’re heading to Red Lobster, Chinese-farmed shrimp may be more expensive. The United States bought $419 million in 2003, but duties up to 112 percent are on the way. Hand trucks? China’s U.S. exports reached $16.7 million in 2003. More duties. Going to Wal-Mart for color TVs?

The same.

Textiles and apparel will a big test for the bilateral relationship. U.S. industry and labor groups are going after $2 billion in Chinese imports not with duties, but with new import quotas. The trade barriers wouldn’t stop rapidly increasing imports of China-made pants, shirts, socks and underwear, but they would slow them.

The decisions reflect growing anxiety about Chinese gains at the expense of U.S. manufacturers. China’s exports to the United States are rising faster than many Americans are comfortable with. In 1973 China’s products made up 0.1 percent of all U.S. imports. Thirty years later it was more than 11 percent, according to World Trade Organization figures. Imports of Chinese computers, toys, games, sporting goods, TVs, VCRs and computer accessories contributed to a $16.8 billion U.S.-China trade deficit in October, the biggest with any nation.

In 2003, China received more foreign direct investment than the United States, knocking the U.S. off of a long-held perch. And China is increasingly on the hunt for the world’s best and brightest scientists, engineers and managers. “It is the rise of China that poses the greatest challenge to America’s position in the world,” noted William R. Hawkins, senior fellow for national security studies at the U.S. Business and Industry Council in November.

Not everyone is so worried. In fact, some are cashing in on China’s manufacturing prowess and newfound prosperity. U.S. soybean farmers, semiconductor makers, aircraft and industrial machine manufacturers, chemical producers and others are sending billions of dollars in products to China.

Most recently, IBM sold its personal computer division to China’s Lenovo. The $1.75 billion deal creates the world’s third-largest PC business and establishes Lenovo as a major global brand. “We have worked very carefully with Lenovo to put in place all the elements of a strong, successful, enduring global alliance,” said Samuiel Palmisano, IBM chairman and chief executive.

Lenovo isn’t the only Chinese company to stride onto the global stage. Chinese communications equipment developer and manufacturer Huawei Technologies competes directly with U.S.-based Cisco. It is in a joint venture with German standard-setter Siemens, created to develop, manufacture and market the latest generation of mobile phone technology. “With 270 million mobile phone customers today, China is the world’s largest mobile communication market and is expected to grow faster than the world market for several years” said Lothar Pauly, president of Siemens Communications.

China’s massive domestic market, where it is open to international competition, is creating world-class competitors. “These firms will eventually disrupt the status quo in a number of global industries. Consumers everywhere will undoubtedly benefit from this trend, gaining greater choice and probably lower prices. Foreign companies, however, face mixed fortunes: Some may gain as rising Chinese companies and consumers demand their goods, while others may encounter intense competition from new Chinese entrants,” AllianceBernstein, a New York institutional investment management and research firm, wrote in a December report.

Appliance maker Haier is another Chinese company that has grown from a domestic player to a global force. The company opened a showroom in New York City and employs South Carolina workers at a manufacturing plant and distribution center.

Competition, already intense, is bound to get worse for many companies. “We expect emerging Chinese companies to disrupt markets around the world, as Japanese companies began to do 30 years ago and Korean firms have begun to do more recently,” AllianceBernstein said.

U.S. companies recovered smartly from Japanese competition in the 1970s and 1980s, though not without some fallout. U.S. auto companies, steel manufacturers, electronics makers, apparel workers and others were hurt. Protectionist barriers, such as Ronald Reagan’s “voluntary” restraints on Japanese exports of compact cars, rose.

Still, the threat from Japan, once menacing, now seems quaint. American companies from Chrysler to Microsoft created, adapted and prospered. “We all looked pretty stupid when we said Japan was going to overtake the world. America came back quite nicely, in part because we still had this entrepreneurial capacity,” said Dick Wittink, a Yale School of Management professor who studies global marketing. “Maybe we still do … [though] things look a bit darker.”