Commentary

China is the Culprit for American Woes

China is the Culprit for American Woes
By Greg Strid

A brief introduction:

The days of plenty may be coming to an end. There
is a palpable sense of unease that stretches from coast to
coast. People cannot put their finger on it, but they know
that something is amiss. Politicians and business leaders
can feel the tension in the air, but they know that
a good deal of what is going on is their fault- stagnant
wages, the outrageous cost of health care, and the growing
divide between the super-rich and everyone else. Just
over a week ago, the Commerce Department enacted
what will likely be the first of many tariffs aimed at Chinese
manufacturers. China is fast becoming a scapegoat for
all that ails the American middle class. Elected officials,
with the encouragement of business leaders, are all
too eager to point their fingers east in an effort to shield
themselves from responsibility. China is no saint, but it
is not the devil incarnate either. Attacking China with the
venom that should be reserved for the true culprits will
only cause further, and quite possibly, irreparable damage
to both economies.

The complete article:

A little over a week ago, the Commerce Department
announced that it would impose tariffs on two Chinese
companies that sell glossy paper products in the U.S.
market. Carlos Gutierrez, Commerce Secretary under
president Bush, announced that the new duties, of 10.9
and 20.4 percent will be applied to the products of two
companies, and are to take effect immediately.

The new duties are being imposed because the Bush
administration is accusing the Chinese government of
illegally subsidizing these two companies at the expense
of American manufacturers of high-gloss paper products.
Currently, imports account for only 5 percent of the
domestic market, but many in the industry fear that they
will be forced out of business if Chinese manufacturers
are allowed to compete with unfair cost advantages.

There is an important distinction to be made between
subsidies, which can lead to the imposition of large
duties, as in this case, and antidumping, which occur
when imports are sold in the US at below what it costs
the manufacturer to produce the product- these
infractions usually result in smaller penaltes.

This is a watershed moment in US protectionism,
because for at least the last 20 years, China was
considered to have a state-run economy, and therefore,
the state-owned businesses in it were not acting
independently, and could not be accused of making
decisions that would be considered market-based.
China is now an exporting giant, and is considered to
be deploying sophisticated marketing strategies in
order to improve the bottom line of its industrial
concerns.

The administration’s new course of action was permitted
by a Federal court ruling supporting the claim that
Chinese actions taken to aid certain businesses can be
defined as subsidies. This means that China is no longer
seen as a communist nation, even though it is a one party
state. Its growing economic clout has caused the U.S. to
redefine China’s competitive status.

America’s trade deficit with China equaled $232.5 billion
last year, and is equivalent to almost a third of the overall
figure. As the U.S. manufacturing base continues its
decline, China is increasingly seen as the culprit; a giant,
low-cost factory floor that is siphoning high-paying jobs
away from the US economy.

The imposition of such stiff tariffs on a relatively small
amount of goods is considered by many in government and
industry to be a trial run, with more wide-ranging actions to
follow. The Commerce Department acted in response to a
complaint by the NewPage Corporation, the biggest
producer of high-quality paper in the US. The complaint
was backed by several large US industry Groups, including
steel manufacturers, whose grumblings led to the imposition
of tariffs in 2002. The Commerce Department’s decision to
penalize two Chinese paper companies was cheered by
labor unions and environmental groups- neither one has
been fans of the Bush Administration.

The Democrats are even more critical of Chinese trade tactics,
which include maintaining a weak currency in order to aid
exporters, and providing cheap loans to important industry
groups. They claim that the Bush administration has allowed
China to run roughshod over American manufacturers, and this
criticism may be what is causing the Commerce Department
to act.

“The Chinese economy is replete with subsidies,” according
to Undersecretary of Commerce for International Trade
Franklin L. Levin, who was interviewed by the Washington
Post earlier this week. As American steel, textile and plastics
makers wait in the wings to launch actions of their own, trade
relations between the two economic superpowers is likely
to come under further strain.

But, many note that targeting state-subsidized businesses
misses the larger issues concerning trade with China, such
as protection of intellectual property, counterfeiting, and the
reduction of barriers to selling foreign goods in China. And,
many American firms benefit from the lower cost of Chinese
products, allowing them to pass the savings on to American
consumers- the Wal-Mart defense.

In reaction to Washington’s decision to impose tariffs on two
of its paper goods companies, China has voiced its outrage
by calling the move ‘absurd’. They do have a point, given the
fact that just a few years ago, the WTO declared the US guilty
of illegally subsidizing Microsoft and Boeing through the use of
tax rebates.

Chinese officials also argue that the US does not understand
the difficult road to free market capitalism faced by state-run
companies, and that these subsidies are temporary in nature-
designed to ease the transition to a competitive global
economy.

China can fight this decision in US courts, and it can raise
the issue with the WTO. But, that will take months, and the
sanctions authorized by the Commerce Department go into
effect immediately.

The most important aspect of this case is that China is now
legally classified as a market economy by the U.S. government,
and the actions of its government in support of industry can be
viewed as intentionally conferring a competitive advantage in
the global marketplace.

At a time when the U.S. and China must cooperate on issues
ranging from North Korea to global climate change, the
floodgates may open for U.S. industry to spur short-sighted,
vote-seeking politicians to do their bidding by slapping onerous
tariffs on Chinese competitors.

China is increasingly seen as the main reason for the declining
fortunes of America’s middle class. In such an environment, it
is easy for politicians and business leaders to point at a high-
profile scapegoat in order to assign blame, and pass punitive
tariffs designed to punish the Chinese for stripping American’s
of their livelihoods.

The real causes of the demise of American living standards
stems from the lack of affordable health care, the strip mining
of consumer assets by an all-powerful, yet unaccountable
financial services industry, and the continuing concentration
of wealth in the hands of the few. All of this has occurred with
the cooperation of elected officials. Singling China out as the
culprit for America’s economic woes lets the real perpetrators
off the hook, and will damage the relations between two
nations that need to cooperate in order to remedy many
of the world’s most pressing concerns.

© Greg Strid 2007

© 2007 Splendid Marbles.