On Tuesday, the US Republican-led House Ways and Means Committee turned its
attention once again to the question of China's trade policies and how they
impact American industry. Not surprisingly, much of the conversation focused on
the role China's undervalued currency continues to play as American business
tries to compete both domestically and internationally with Chinese firms.
Even so, the hearing shed new light on other areas of concern where Washington
lawmakers believe they have a better chance
of creating change in the economic and political policies of both China and the
United States.
Committee chairman Dave Camp (Republican - Michigan) stated in his opening
remarks that "China purposefully makes it harder to sell our goods and
services, unfairly subsidizes its own companies, and blatantly steals the
intellectual property of American businesses." He went on to add, "China's
distorting trade policies are deeply troubling and cannot be allowed to stand.
Its practices are costing US jobs. China has benefited greatly from
globalization, and it must abide by the same rules that afforded it that
prosperity."
Congress is in the process of coming to terms with the possibility that even if
it is successful in passing a bill which would either force China to be called
out formally as a currency manipulator or, in a more aggressive possibility, to
actually impose duties on Chinese imports, the net result would likely have
only a marginally positive impact on the American economy.
As a result, congress is likely going to turn its attention on more substantial
allegations about how the structure of the Chinese economy - its ongoing
protection of the part which is state-controlled - are explicitly
protectionist, and as such in absolute violation of World Trade Organization
rules.
The currency issue is symbolically important, which makes it easy to fixate on
politically, but as many economists and policy makers know, fixing it would not
immediately change the role of China as the world's factory. The expanded list
of grievances chairman Camp referenced on Tuesday is important because it feeds
the more general concern and growing consensus in Washington that China's trade
policies are not fair.
The historic trade developed economies in North America and Europe were willing
to make with China was essentially this: we accept some mercantilist policies
on your part given your relative lack of development when measured against our
economies; however, we expect access so we can replace jobs lost to you with
new jobs based on selling into your country's opening economy.
What Camp alleges is that this trade is not happening and that as such, America
has many reasons to go back to the drawing board and rethink the policy of
economic engagement that has knit the two countries together for most of the
last three decades.
Trade subcommittee chairman Kevin Brady (Republican - Texas) voiced his opinion
on Tuesday that the American response to these concerns should be one that
brought many injured parties to the table to best leverage China. According to
Brady, "some of the most effective tools for addressing these concerns are
through multilateral engagement with China. While the United States should
never hesitate to file a WTO case, where appropriate, its efforts are often
greatly enhanced through the development of a coalition. A great example of
this is the strong cooperation between the United States, the European Union,
and Japan on China's export restraints."
Deputy United States Trade Representative (USTR) Demetrios J Marantis,
representing the Barack Obama administration, was quick to point out that one
of the few bright points in the American economy are exports to China. As
Marantis said, "US exports to China are growing by double digits across a
variety of sectors". He went on to state that "China is now our third-largest
export market for goods. In fact, since 2001, our exports to China have been
growing faster than to any other major market in the world."
However, Marantis' overall positive view of the role China could play in
growing America's economy was not without what he identified as "five key
challenges". Two of these concerns - intellectual property rights and China's
"weak rule of law" - are not new concerns, but three of these are points that
are beginning to draw louder protests from American business.
According to Marantis, these three include "problematic industrial and
subsidies policies, [and] agricultural policies that are not science-based,
investment restrictions".
The USTR is particularly troubled by China's policies towards electric vehicles
(also called "new energy vehicles", or NEVs). As the USTR sees it, China's NEV
industry has been made possible because American manufacturing technologies
were successfully transferred to Chinese producers. But now that NEVs are part
of China's 12th Five Year Plan (2011 - 2015), the USTR is "alarmed by reports
indicating that China is imposing requirements on foreign automakers to
transfer core NEV technologies to their China joint ventures and to establish
Chinese brands in order to participate in this promising market."
In fairness to China's policy makers, this has always been the sort of trade
outsiders had to be willing to make in order to participate in the Chinese
economy. Historically, the quid pro quo was that if you wanted to build a
factory in China, you had to be willing to leave those manufacturing assets in
place, even if you elected to exit the country. This was China's way to close
the gap in its industrial infrastructure in the 80s.
Because the type of technology being transferred in these cases was fairly
rudimentary or highly mature, most American businesses found this to be
acceptable terms. But now that China's industrial gap has narrowed and Chinese
firms are moving up the technology value chain, American business is beginning
to push back against this policy, and is asking of Beijing and Washington to
put into place a new way of working together which does not assume this same
sort of technology transfer.
Lael Brainard, under secretary of international affairs at the US Treasury,
acknowledged both China's long-standing policy in this area as well as the more
recent push back from American business. During Tuesday's hearing he said that
"For sustained growth, China wants greater access to US technologies and
high-tech dual use exports, to make progress on bilateral investment, and wants
their exports to be accorded the same terms of access as exports from other
market economies."
American policy makers understand China's objectives and, as Brainard said,
"are willing to make progress on these issues, but our ability to move will
depend in part on how much progress we see from China on issues that are
important to us."
Among the most traditional industries represented in Tuesday's hearing was the
American textile industry. The National Council of Textile Organizations stated
that its past lobbying on these issues had created results, and that congress
should believe that similar outcomes could be generated if China's policies
were properly addressed.
In a statement this week, the NCTO wrote that "US textile exports continue to
be a bright spot in 2011, with a 16% increase so far this year. This has
contributed to a rebound in the industry, with four new textile plants opened
over the last 18 months, including a US$500 million DuPont textile fiber
facility in South Carolina."
Sub-committee chairman Brady's closing comment struck a powerful note and
reminded many who heard it that congress still has many in its halls who
believe America is resilient enough to out-compete China, and that
protectionism is not the right solution.
Brady noted that "I think it is important to reiterate that our approach to
China should not be to erect new protectionist barriers to match China, but
rather, to tear down China's barriers. We will never win a battle to
"out-protectionist" China. Rather, we must continue - and enhance - our efforts
to tear down China's walls to US exports and investment."
While the temptation during a difficult time in the American economy will be to
pursue further protectionism, this will only lead to greater economic malaise
and political tensions. The way forward, as Brady suggested, is to force China
to abide by and live within the international rule sets it so aspired to join.
This is the best, and perhaps the only, way forward absent the wrong sort of
tipping point for the world's economy.
Benjamin A Shobert is the managing director of Teleos Inc
(www.teleos-inc.com), a consulting firm dedicated to helping Asian businesses
bring innovative technologies into the North American market.
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