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China Trade – A Nautical Naughty?
(Or Merely
Knotty?)
By
Dave Chaddock
Trading with China. We make a living at it. Should we be ashamed
of ourselves? In his new book, THE CHINA FANTASY, James Mann writes: "Across
the US, factories have closed and millions of Americans have been put out of
work as the result of our decision to keep our markets open to Chinese goods. "Mann suggests that if China is not stopped,
in 30 years it will "serve as a model for dictators, juntas, and other
undemocratic governments throughout the world Senator
Dorgan calls our "wide-open trade with China" a "misstep of
cosmic proportions." He mourns what he calls the decimation of
the "bedrock of America", the steel worker in
Pittsburgh, the craftsman in Minnesota, the textile worker in Georgia Should
we not be rising up in arms at the fact that all the good jobs are "leaving America at a
dizzying pace?" Should we not be indignant that 900 Ohio workers
recently lost their jobs when Huffy Bicycle Company moved to China where they
can pay Chinese workers 33 cents an hour to make bicycles? (See his book
TAKE THIS JOB AND SHIP IT.) And Greg Palast, funnyman on the left, warns us
against aiding the "Darwinian horror show of China." Remember
when America was Number One? Now even Chinese farmers have
gotten into the act, selling more garlic in the US than California
does,
and even having the nerve to horn in on our Far East markets, selling their
apples, broccoli and lettuce to Japan! Where will it all end? Many lawmakers
are now saying that it is high time to "stop treating China with kid
gloves."
(NYT, 3-2) The US recently announced that it will impose 10-20%
tariffs on Chinese imports of the paper used in brochures and catalogs. Are
tariffs on steel, plastics, machinery and textiles to follow suit?
Before endorsing such protectionist policies, we had better take a closer
look at the situation. Yes, right now our imports from China are dwarfing
our exports to China, but at the same time these exports are not to be sneezed
at. The fact is, our export situation is somewhat lackluster of late,
except in the direction of China. From 2001 to 2005 US exports to China
rose five times faster than US exports to the rest of the world, and in that
period, China rose from being our ninth export market to becoming number four. So
far China has not threatened to retaliate in kind. It plans to appeal the
high-gloss paper tariffs in US federal court, and at the WTO. But we better
hope China does not try to get even. A good place for it to start
would be to object to US cotton subsidies. Without these subsidies, it would not
pay for the US to export cotton at all. But with the government
providing more than half the income, the US is the world's largest cotton
exporter, as 25,000
very
rich farmers get about $200,000 each of our tax money. As this subsidized
cotton floods the Chinese market, the price that Chinese cotton farmers receive
for their crop has dropped drastically. Domestically produced cotton in
China is now practically unmarketable. A similar situation exists in
soybeans. In 2002 China imported about 11 million tons of soybeans. Then
it entered the WTO and surrendered its right to limit soybean imports. For
the following three years these imports, mainly from the US, skyrocketed to over 20
milllion tons a year. The effect on the incomes of Chinese soybean
farmers was near catastrophic. (Maybe some of them switched to garlic and
lettuce!) Yes, we can sympathize with the Huffy bicycle workers, but many
Chinese farmers are suffering similar pain. And there is another point. Long
before China trade
became the culprit, US workers have been made idle by an even greater force,
automation. We have certainly seen it here on the waterfront, with
the coming of the shipping container. Similarly, at Copland Fabrics, in
Burlington, North Carolina, where the president of the company says he is
"mystified" by "sending jobs over to Communist China",
Copland had already reduced its work force from 850 to 350 by installing
computerized looms. This was before China had gained large-scale access to
the US market. (NYT, 11-2-03) Again, consider the fact that China itself makes
precious little from most of the products it exports, 70% of which are processed
products. Japan, South Korea,
Taiwan, and the Philippines have made use of China as a final assembly point. In
a typical transaction, China pays $100 to import raw materials, and exports the
finished product for $115, making only $15. Tariffs would hurt and penalize
many other economies, not just that of China. Besides, the invisible hands
of multinational corporations, most of them American, rake in the bulk of the
profits from this trade. Such corporations have also profited from
providing services and technology that are not included in trade statistics.
We
are told that China should drastically increase the value of its currency, which
used to be pegged to the dollar, but has recently been allowed to float up by
5%. This would hardly be a solution. When a sneaker that China sells
for $5 retails in the US for $170, even a 50% hike in RMB would not change the
fact that the Chinese article would be vastly cheaper. Besides, as
the RMB rose in value, the raw materials imported by
China,
which constitute a large proportion of the sale price of the finished products,
would become less expensive. Moreover, even if they rose in price, many Chinese
goods are high in quality and would still be preferred. Already, textiles from
Bangladesh are cheaper, but are not as well made. But let us suppose that
we did succeed in vastly cutting back Chinese exports of textiles by making them
too expensive to buy. Leave aside for the moment the harm that this would
do to the 90 million Chinese workers employed by the textile industry.
What would be
the upshot for our side? If the value of the RMB is increasing in relation
to the dollar, this means that the dollar is simultaneously decreasing in value. Right
now the Chinese invest a large proportion of their foreign exchange profits in
the purchase of US treasury bills. They could earn far better returns by
investing their money elsewhere. To the extent that the dollar loses value
this becomes even more true. It is insane to try to save the US economy by
making the dollar worth less and less. At the present time the US is acting very
irresponsibly in running up a huge federal deficit. What allows us to
keep doing this is in effect the money being lent to us by the Chinese (and
others). The average American makes $40,000 and saves nothing, whereas the
average Chinese, making a lot less, saves about 23% of his income and puts it in
the bank, which in turn lends a large portion to the US by buying
dollar-denominated bonds. The Chinese, also holding about $100 billion in
mortgage-backed securities, are starting to wonder just how long they should
continue to subsidize the low interest rates of their ungrateful American
friends. While we borrow against illusory gains in wealth from rising home
values, the Chinese have been working hard and creating real value that we in
turn are squandering away! Already the Chinese have formed an organization that
will start to invest a growing portion of its Forex reserves more
diversely
and aggressively. Since these reserves are accumulating so quickly -
by more than
$20 billion a month - China has money to spare and is likely to continue buying large
numbers of treasury bonds for a long time to come. Moreover, an economic
decline in the US, which would be caused by a dumping of Chinese dollar assets,
is not something that China wants to see, as this would hurt its sales to the
US. Nevertheless, the system is out of whack. It is bizarre and cannot
continue much longer.
In
the long run a solution must be found that would entail the Chinese saving less
and spending more on US products. One of the difficulties with this is that
the Chinese social security and medical situations have been such that the
average Chinese has not felt safe without piling up a large nest egg. But
this will be changing. For many years the Chinese have put all their
emphasis on growing stronger and building up their economy. Now they
realize that human relations have suffered and the environment has suffered. They
launched an experiment to privatize medical care and they acknowledge now that
it was a gigantic failure. The new emphasis is on "soundness" of
development. The poor and the vulnerable are going to get more support.
Huge sums are being allocated for government- supported medical care and for
education. All six million of its civil servants are going to be given
training courses in the next five years in order to impart to them "the
urgency and necessity of building a socialist countryside" where the
farmers are not neglected. (BEIJING REVIEW), 3-29)
This does not
mean that growth will be abandoned, for the Chinese believe that it is thanks to
these years of rapid growth that they have obtained the strength to
pay more attention to "soundness."
Another part of the solution is
for the US to sell more high-tech goods to China. The US certainly has the
capability of doing this. At the recent China trade fair in Guangdong
Columbus McKinnon of Amherst NY could be found selling top quality electric
chain-hoists. And in Erie Pennsylvania GE Transportation employs
4,500 people to make locomotives which sell well in China because they have the
lowest emissions of anything on the market, and get the best mileage.
One
thing that very much hampers high-tech sales is the fact that the list of
commodities that the US cannot sell to China runs to 7,000 pages in length. What
is forbidden is what are called "dual-use" items that might be put to
military purposes. The sooner we decide that China is not our bitter enemy
the better it will be for our balance of payments.
In
the meantime we should stop acting as if we are God's gift to humanity and the
Chinese cannot get along without us. Faced with a rising threat of
protectionism and the decline of the dollar, China trade is growing faster in
Europe, Africa, the Middle East, and in South America. If anything, we need them
in this mutually beneficial relationship more than they need us! We should
not turn up our noses at the fact that China has saved severely strapped
American consumers millions of dollars by providing inexpensive everyday items. The
fact that a large proportion of these items have been sold by Wal-Mart
(or Mall-wart as I saw it called on a bumper sticker) should be a separate
issue. It is not inevitable that goods from China have to be sold to us by
labor-hating, chiseling skinflints with large dangerous parking lots.
And speaking of Wal-Mart, let us note that it has recently been forced
to unionize. Not in the US as yet, but in China! It has been a
long struggle. In December of 2004 there was an article in BEIJING
REVIEW which declared that "far-sighted entrepreneurs should understand the
social value of trade unions." It also noted that it was very
difficult to get a hold of Wal-mart's China headquarters, "which always
used the excuse that managers were absent." But the article warned
that foreign-funded enterprises in China could be sued if they persisted in
their refusal to allow unions. That same month there was a strike by
workers at Uniden, where 12,000 were employed making wireless phones for Wal-Mart. Women
at Uniden had been forced to work 11-hour days, with half their
wages going
for rent. During this same period, as many other work stoppages were taking
place, Andy Stern, head of the Service Employees International Union, after
meeting with union leaders in Beijing, and noting their complaint that Wal-Mart
"won't even talk to them", offered his opinion that Chinese workers
are "as jolted by the global economy as workers in America." (NYT
Magazine, 1-30-05) It is true that in the past, as BEIJING REVIEW itself admits,
labor unions have "sought to build a cordial relationship between
management and employees." (BR, 8-10-06) Union leaders in fact used
to be appointed by management. But as the chairman of the Nanjing Trade
Union, Chen Siming, now declares: "The old-fashioned concept of a
trade union must be changed." Before 2004, at Nanjing Plastic, all the
executive positions in the union were taken by "goody-goodies" who "practically
did nothing except send gifts on holidays and organize some activities." However,
says Chen, the union "should be bound tightly with the workers real
interest--salary." (BR, 12-04-06) It was in 2004, in fact,
that workers discontented with "stagnant wage levels" staged what
author Andrew Ross calls "one of the most massive withdrawals of labor in
recent times." At
the end of the spring holiday more than two million of them simply failed to
return to their factories. This was ten percent of the work force. The
manager of a French electronics firm had a complaint that was near universal
among foreign managers of China operations. "What really hurts is when
you give them the benefit of training and then they leave for a better salary
somewhere else." But as Ross points out: "The disloyal
mind-set of [these] job-hopping employees, always on the lookout for the main
chance, could not easily be distinguished from the ravening mentality of the
investor, always on the lookout for the best returns." (Ross, FAST BOAT TO
CHINA). Does it not seem that the chickens are coming to roost in China for
the likes of those who would pack up and leave people like the Huffy bicycle
workers of Ohio in the lurch?
Respectfully, I should like to submit that we have worker counterparts in China
who are facing some of the same issues faced by ourselves. And the work we
do, helping to transfer trade goods that create livelihoods on both sides of the
ocean and encourage international peace, is nothing to be ashamed of. In
fact, we can take pride in what we do.
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