TruthNews

The Economic Challenge from China

Nick Smith, December 14, 2003

Chinese Premier Wen Jiabao visited Washington and met with President Bush and other officials on December 9. He came to smooth U.S.-China relations. There are significant disagreements about Taiwan, the war on terrorism, North Korea's nuclear program, human rights, proliferation of dangerous weapons, and China's military buildup. To try to work out some of these problems, I will be joining a group of my colleagues in January as part of a congressional delegation traveling to Beijing.

Perhaps more important than any of these issues is the worsening balance of trade between the U.S. and China. In 2002, China ran a trade surplus of $103 billion with the United States, with imports at more than five times the level of exports. The common thinking is that the U.S. can't compete with its higher labor costs. Three CEOs who I met with recently deny that, however, saying that the Chinese are also subsidizing their products in hidden ways. One told me that China both pays the highest prices for copper in the world for their government-owned industries, while offering the lowest prices for goods made out of copper. Even the low labor costs aren't enough to make up the difference between what they pay for materials and what they sell products for. The difference is somehow made up by government for their companies.

China has been a member of the World Trade Organization (WTO) for almost two years, but it continues to violate a number of commitments it made to join. For example:

China continues to impede market access for many U.S. agricultural products, particularly soybeans, wheat, corn, cotton, vegetable oils, poultry, and pork. In August, Chinese officials terminated U.S. soy imports because the shipments had been infected with phytophtera, a fungal disease that is endemic to China and poses no additional risk to Chinese crops.
China levies a 17 percent "value added tax" on all semiconductor and integrated circuits products, but offers a rebate for products made in China.
Inadequate intellectual property rights enforcement has resulted in estimated piracy levels in China for most copyright sectors at around or in excess of 90 percent.
In late 2002, for example, Chinese engineers attempted to steal software and hardware secrets from Sun Microsystems, NEC Electronics Corporation, and Transmeta Corporation offices in California's Silicon Valley.
Nearly two years after WTO accession, China has yet to permit any foreign banks to compete in China's financial services market as required by the agreement.
There is continuing concern that China is artificially suppressing the value of its currency, the yuan, which makes their products cheaper in the U.S. and our products more expensive in China.

It won't be easy, but we can meet the economic challenge from China. We need to be tougher on China to honor its WTO obligations. But we will also have to increase our own productivity and competitiveness to keep up. We need lower business taxes to match our international competitors; fewer overzealous, intrusive, and unnecessary regulations that drive factories overseas; tort reform to cut down on inappropriate lawsuits; a more competitive health care system to hold down costs; and stepped up efforts to make U.S. education and research the best in the world. If we do not take these steps, we run a substantial risk of seeing more and more of our industry leave the U.S. for China and our other economic competitors.

Congressman Nick Smith, a Republican, represents Michigan's 7th Congressional District in the U.S. House of Representatives.