Bloomberg News

Romney’s Tough China Talk May Fall Flat as South Carolina Trades

January 24, 2012

(For more on the 2012 campaign, ELECT.)

Jan. 20 (Bloomberg) -- While Mitt Romney is a long way from the White House, he already knows what he would do on his first day in the Oval Office: crack down on Chinese “cheating” on trade.

Romney vows to designate China a “currency manipulator” and impose duties on its imports if the yuan isn’t allowed to float freely. As Republicans prepare for tomorrow’s presidential primary in South Carolina, that pledge may cheer companies such as steelmaker Nucor Corp., which has a plant in Darlington and is among those blaming Chinese subsidies for eroding profits.

Yet South Carolina, long a battleground for textile makers fighting to block imports, is increasingly prospering through overseas ties and could suffer in any trade war. Companies such as France’s Michelin & Cie., Germany’s Bayerische Motoren Werke AG and Sweden’s Husqvarna AB employ more than 102,000 state residents. And a dozen Chinese manufacturers have set up shop.

“We can’t be protectionist; look at who our biggest employers are,” said Bob Faith, former state commerce secretary, who cited several foreign-owned companies. “That is South Carolina, and these are South Carolina jobs.”

Faith, a Romney supporter, said he doesn’t see a risk that the candidate’s views could hurt trade-dependent U.S. states. And trade isn’t a major issue in tomorrow’s primary, nor is it likely to sway reliably Republican South Carolina in the November election. Nationally, it could be a different story.

Looming Larger

China looms much larger today than it did four years ago when Democrat Barack Obama and Republican John McCain of Arizona campaigned for the presidency. U.S. exports to China in the first 11 months of 2011, the most recent data available, were 67 percent higher than during the same period four years earlier.

That means a bigger domestic constituency with a stake in the Asian country -- and a tougher balancing act for Obama and his Republican challenger as they court workers and businesses feeling trade’s sting.

“We in the United States, some 800,000 jobs, are dependent on American-made goods and services being sold to China, from our soybeans to airplanes to machinery,” Gary Locke, the U.S. ambassador, said on “The Charlie Rose Show” on Jan. 16. “We have an interest in greater prosperity of the Chinese.”

Still, attacks on China resonate with part of the American electorate: The country’s economic rise was seen as a “major threat” by 59 percent of those responding last month to a Pew Research Center poll.

China ‘Threat’ Plays

“The ‘Communist Chinese are a threat to our economy and way of life’ gets play among a broad spectrum conservative base no matter where you sing that tune,” e-mailed Scott Huffmon, director of the Social and Behavioral Research Laboratory at Winthrop University in Rock Hill. “It just so happens that the 2012 tour is swinging through S.C. this week.”

Other Republican candidates have warned of China’s emergence. Former House Speaker Newt Gingrich has described the nation’s rise as a “threat,” although he says the U.S., which ran a $26.9 billion trade deficit with China in November, can defeat the challenge by rebuilding its manufacturing base and maintaining a strong defense.

At a candidates’ debate last night in North Charleston, Representative Ron Paul said Americans “shouldn’t be frightened about trade” because it often helps them to save money by buying cheaper products from overseas. Former Senator Rick Santorum said the corporate tax rate should be cut to zero for companies that manufacture in the U.S. to stem the loss of American jobs.

Seeing Opportunity

South Carolina officials see more of an opportunity than a hazard and began targeting China with a 2003 trade mission led by then-Governor Mark Sanford. Textile magnate Roger Milliken, who died in 2010 at the age of 95, was deeply suspicious of the Chinese and opposed the initiative.

“He came to my house on a Sunday and read me the riot act,” Faith said.

Two years later, the state dispatched a Chinese-born executive, John Ling, to Shanghai to woo companies that were considering expanding abroad. Since then, Chinese manufacturers have set up South Carolina plants making everything from auto parts and printing equipment to cutting tools.

They followed the lead of appliance maker Haier Group of Qingdao, China, the first Chinese manufacturer to invest in the U.S. The company established a refrigerator plant in Camden in 1999.

‘Lot of Jobs’

“Haier’s presence in the United States has created a lot of jobs,” said Joseph Sexton, president of Haier America Research and Development Co. “That’s little understood by the people here and the majority of politicians, other than state politicians.”

South Carolina officials estimate Chinese manufacturers have invested a total of $308 million and created 1,900 jobs. China also was the state’s third-ranked export market in 2010, up from fifth place two years earlier, according to the U.S. Commerce Department. Those export figures are likely to grow once Boeing Co. begins shipping 787 Dreamliner aircraft from its new production facility in North Charleston.

The 335,000-square-foot Haier plant lies off Highway 521 in Camden, the site of a Revolutionary War battle. Inside, just under 200 workers manufacture a variety of refrigerator models beneath Chinese and American flags. The factory walls bear motivational injunctions in “Chinglish,” the fractured blend of Chinese and English.

“Strive for a clearly defined objective and make impossible possible without any excuse,” reads one blue and white banner.

$1 Million Overhaul

Employment here peaked at about 350 in 2005, near the height of the housing bubble. The assembly line was quiet one recent day because of a $1 million overhaul of the line’s product test segment.

The past few years, Haier has moved some additional work from China to Camden. Rising wages in China and the yuan’s gradual appreciation have made the U.S. more competitive as a manufacturing location.

On an inflation-adjusted basis, the Chinese currency has appreciated almost 10 percent against the dollar over the past year, Locke told Charlie Rose.

Haier, which already bins its steel from a local supplier, responded to that shift by moving production of some refrigerator parts, such as door bins and plastic crispers, to Camden from China, Sexton said.

The Math Works

If the company can improve its sale of heavy refrigerators and freezers, additional production could follow.

“Large products are expensive to ship from China to the U.S.,” Sexton said. “I could see where that math would work.”

Though the yuan’s gradual rise could boost U.S. employment, Romney wants to push China for faster change. His supporters such as Faith, now a real estate executive in Charleston, see little danger in that for states such as South Carolina.

“Even if there are short-term skirmishes, the outcome will be better, frankly for both of us,” he said.

Governor Nikki Haley has endorsed Romney, a former Massachusetts governor. A spokesman for Haley didn’t respond to an e-mail requesting comment.

Locke said the Obama administration shares Romney’s concern about the yuan. The administration has filed five World Trade Organization complaints against China and in 2009 imposed tariffs on imported Chinese auto and light-truck tires.

$500 Million Plant

In October 2011, Continental Tire the Americas LLC, a unit of German tire maker Continental AG, announced plans for a $500 million plant in Sumter County. A company official told the Columbia Regional Business Report that domestic demand and easy access to Charleston’s port were key reasons for its decision.

Others saw trade policy at work.

“Tire production is coming back to the U.S.,” said economist Doug Woodward of the University of South Carolina. “We’re benefiting from that in South Carolina.”

China, too, has resorted to trade levies. In December, it imposed tariffs on imports of U.S.-made cars, including luxury vehicles made at BMW’s Spartanburg plant.

“I wouldn’t call that a trade war,” said Woodward. “But that’s a skirmish.”

--Editors: Mark McQuillan, Jim Rubin.

To contact the reporter on this story: David J. Lynch in Washington at dlynch27@bloomberg.net; To contact the reporters on this story:

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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