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Get Four
|  | OCTOBER 3, 2003
Is the Job Drain China's Fault? The truth is, the major reasons for U.S. job loses lie elsewhere and are far more complex, so a revalued yuan isn't the answer China bashing is all the rage. With millions of manufacturing jobs evaporating from the U.S. while China's trade surplus soars, politicians of all stripes are under pressure to show the folks back home that they're doing something, anything, to stem the losses. The swelling federal budget gap means that further stimulative tax cuts are out of the question. So many politicians, manufacturers, and labor representatives have pounced on China, accusing it of keeping its currency artificially low to boost exports and snatch jobs from American workers. In Congress, moves are afoot to impose punishing tariffs on U.S. imports from China if Beijing doesn't mend its ways. Separately, a coalition of business groups, led by the 14,000-strong National Association of Manufacturers (NAM), is planning to file an anti-China trade case with the government, alleging that it rigs its currency to gain unfair advantage. The Bush Administration has also gotten into the act. Treasury Secretary John W. Snow flew to Beijing in early September and called on China to stop rigidly controlling its currency rate, then sang a similar song at the G-7 meetings in Dubai. Administration officials say the President may repeat that refrain when he meets with Chinese leaders in Bangkok on Oct. 20-21. UNDER THE GUN. One reason politicians are whipping themselves into a frenzy over China is because it's an easy way to explain the constant din of layoff announcements that show little sign of slowing. From Levi Strauss, which announced on Sept. 25 that it will close its last remaining U.S. factory and lay off 2,000 workers, to Detroit, where Ford Motor (F ) and DaimlerChrysler (DCX ) were laying plans in early October to lay off thousands of U.S. workers in coming months, the toll continues. All told, the Big Three could shrink their workforces by 50,000 jobs over the next five years, after inking a new union labor contract. But all the political handwringing misses a crucial point. The relationship between the world's biggest economy and its fastest-growing one in recent years can't be reduced to a single trade statistic or a single exchange rate. It's far more complex than that. Over the last decade, the two countries have become increasingly intertwined and interdependent thanks to a rapidly globalizing world economy where cutthroat competition among multinationals is the norm. U.S. companies from Intel (INTC ) to General Motors (GM ) face a simple imperative: invest in China to take advantage of the country's cheap labor and its fast-growing economy or lose out to rivals from Europe, Japan, and elsewhere. "It's hard to serve Chinese customers in a lot of our businesses unless we manufacture there," says W. James McNerney Jr., chairman and CEO of 3M (MMM ). "We don't do it just to eviscerate U.S. jobs. We do it to be competitive." The $17 billion maker of consumer and industrial products was the first U.S. entry to set up a holding company in China in 1984. SMALLER GAPS. Still, there's no disputing that the U.S trade deficit with China is soaring. Since 1994, Chinese exports to the U.S. have more than tripled, rising from $39 billion to an annualized $137 billion in the first seven months of this year. While U.S. exports have risen, too, to around $25 billion, the resulting imbalance has led to a staggering trade deficit of more than $100 billion. Those numbers obscure the real story, however. With scores of U.S., Asian, and other companies opening factories in low-wage China, corporations around the globe are benefiting, and so are the consumers who buy their low-priced, high-quality goods. And as the U.S. trade deficit with China grows, the gap is shrinking with such countries as Taiwan, Singapore, and even Japan, which are increasingly moving factory floors to such mainland China industrial cities as Tianjin and Guangzhou. As a result of that shift in production, some 65% of the rise in Chinese exports since 1994 have come not from Chinese companies but from foreign companies, including many U.S. corporate giants. LOWER RATES. This increased interconnectedness is making it a lot harder for Washington to get beyond anti-China rhetoric. Of China's top 40 exporters, 10 are U.S. companies, including Motorola (MOT ) and Dell (DELL ). What's more, retailers Wal-Mart (WMT ) and Target (TGT ) count on low-priced goods from China to help meet U.S. consumer demand for affordable products. Wal-Mart alone has doubled its imports from China over the last five years, to $12 billion. It now accounts for nearly 10% of all Chinese exports to the U.S. That has helped keep U.S. inflation down, allowing the Federal Reserve to cut interest rates to their lowest level in four decades. Moreover, China is helping to keep U.S. interest rates down by investing bundles of money in U.S. Treasury securities -- some $126 billion, up from $60 billion in 2000. The moral of all this: China is not another Japan, bent on grabbing global share for home-grown companies with mercantilist trade policies and stiff barriers to keep foreigners out of its own markets. While Beijing often talks about industrial policies, its economy is dramatically more open to trade and direct foreign investment than the old Japan Inc.
BW MALL
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