Magazine

China's Trade Edge And America's Weakness


China's economic development has many laudable aspects, but its currency policy and the impact of that policy on U.S. jobs are not among them ("Is it China's fault?" News: Analysis & Commentary, Oct. 13). There is one, and only one, explanation of what's going on when a country amasses more than $300 billion in foreign-exchange reserves: This is currency intervention on a massive scale to depress the value of the currency -- to favor exports and restrict imports. These effects are identical to a tariff on imports and a subsidy to exports. I yield enthusiasm for free trade to no one, but this is not free trade. It is explicit government intervention in trade by the back door.

Lawrence G. Franko

University of Massachusetts

Boston

Editor's note: The writer is a professor of international financial management.

We should blame neither China nor the European Union for our lack of competitiveness in the global economy. The biggest impediment to protecting American jobs is our tax system. We are the only major economy that exports our taxes with our products. Payroll taxes are embedded in our products as a cost. Our major trading partners rely largely on the Value Added Tax for their revenues. They exempt their exports from the VAT. In addition, they are permitted under World Trade Organization rules to charge a "border tax" equivalent to their VAT on all imports. With the average VAT approximating 20%, it's a wonder that we can compete on anything at all.

Edward Golden

Everett, Wash.

Is the job drain China's fault? No, not entirely, but it is most certainly China's good fortune. Twenty years ago, the U.S. punished Toshiba Machinery Co. with a seven-year moratorium on exporting equipment to the U.S. -- because Toshiba sold a five-axis milling machine to the Soviet Union, thereby helping to improve the stealth of its submarine fleet. Today, U.S. companies are spending billions of dollars to build the most modern manufacturing facilities producing some of our most (and least) technologically advanced products, and training their citizens to operate, engineer, and manage these plants. The reason? To increase the bottom line of the companies that are selling the products.

Jeff Mock

Compton, Calif. The Chicago Mercantile Exchange has transparent and effective governance ("Red flags rising at the Merc," Finance, Oct. 20). We fully disclose information about executive compensation, board structure, committee responsibilities, potential conflicts, and financial performance. The reason is simple: The CME was the first U.S. exchange to move from a closed, membership-owned structure to today's status as a listed, open, publicly traded company. On our Web site, in our public announcements, and in our regular filings with government agencies, your readers will find a very high level of disclosure and transparency. (Indeed, all the information Joseph Weber cited was disclosed many months ago in public documents, in some cases more than once.)

Our market capitalization has increased more than 100% since our initial public offering, and trading volume on our exchange for the first nine months of this year increased 17% from a year ago. Electronic trading went from 4% of trading in 1998 to 45% in the third quarter this year. These are strong votes of confidence in our marketplace by the public and leading institutions. We're determined to keep that confidence.

Red flags? Quite the opposite. The green flag has dropped on competition in our industry, and the CME has the pole position when it comes to good governance and market integrity.

Craig S. Donohue

Chicago Mercantile Exchange

Chicago

Editor's note: The writer will become CEO in January. John Carey's article "Drug R&D: Must Americans always pay?" News: Analysis & Commentary, Oct. 13) was déjà vu. Mark B. McClellan, commissioner of the Food & Drug Administration, was in elementary school when I and other health-care advocates originally became concerned about mushrooming drug-price disparity. The pharmaceutical industry convinced the FDA and politicians that "there is a trade-off of today against tomorrow." As Ian D. Spatz demonstrated, they are still singing the same tune today. In the past, the pharmaceutical industry's modus operandi has been to let the latest wave of public outrage pass while continuing to penalize Americans for the bulk of their R&D, physician gratuity expenses, advertising, and lobbying contribution budget.

Mary Erler

Fripp Island, S.C.

I am a physician and educator who testified before former Senator Gaylord Nelson's subcommittee investigating competition in the pharmaceutical industry in 1967. Nothing much has changed. Their claim is that R&D costs are 15% to 17% of income (not including tax deductions and credits). They also claim that the cost per drug brought to market is $802 million. This figure includes only 68 new medical entities (NMES) developed entirely within the companies, which constitute a small minority of drugs marketed and includes the opportunity cost had the R&D dollars been invested in a highflier stock. While the average U.S. industry experiences a net return of 3.3%, the top 10 U.S. pharmaceutical companies reap a net return of 18.5%.

Melvin D. Small, M.D.

Palm Beach Gardens, Fla.

Before FDA Commissioner McClellan asks "other rich nations to raise drug prices" in order to fund the world's basic biomedical research, he ought to ask the Securities & Exchange Commission to explain why the pharmaceutical industry can spend so much on stock options. For example: Pfizer (PFE) latest annual report says that for the three years ending Dec. 31, 2002, they spent $14.3 billion for R&D expenses and in the same period, $9.7 billion to purchase their own common stock to offset their stock options.

R.W. Glenn

Greensboro, N.C. Your article "Frank Gehry's high- tech secret" (People, Oct. 6) perpetuates the myths about architects and the construction process. The architect's role during construction is to review completed work for conformance with contract documents and building and safety codes. State licensing requires architects to perform this function or lose their license. Contractors who claim to thwart this professional duty are in violation of state laws and the terms of most construction contracts. The architect has little interest in increasing the cost of a project; the major benefactor of increased construction cost is the contractor. Changes in construction cost must be approved by the owner as well as the architect.

Robert N. Hesseltine

CSI/AIA emeritus architect

Portland, Ore. As a commissioned sales person, I was skeptical of General Electric Co.'s new strategy of offering free advice and consulting with out any up-front fees or agreements ("Will Jeff Immelt's new push pay off for GE?" The Corporation, Oct. 13). I thought: "It sure didn't take Immelt long to undo Jack Welch's competitive advantages -- what an idiot!"

Then, not five minutes after reading the article, I turned on the 6 p.m. local news to learn that General Electric had referred the Indiana Heart Hospital in Indianapolis for a Chinese cardiologist/CEO to visit, see a clinical setting with 80% GE Medical Systems equipment, and talk to his Indiana peers regarding satisfaction, efficiency, and return on investment.

Nothing could have increased the comfort level and reduced risk more effectively! Immelt's "free knowledge sharing" is a win-win tactic that may save lives and improve the quality of life for millions of people in China.

I've changed my mind. Go for it, GE.

Carey Helmuth

Noblesville, Ind.


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