The Future of Chinese and American Business
November 27th, 2006
The recent change in political control has many wondering about the future of Chinese and American business relations. Future speaker of the House, Nancy Pelosi has been a proponent of regulations of human rights and intellectual property in China for many years. Her strong stance against the country’s human-rights abuses and religious persecution has been widely publicized. In May 2005, Pelosi criticized the China policy of the United States as, “a total failure”(King, 2006). Will her stance on these issues lead to legislation or even sanctions against the growing Chinese economy?
Pelosi has teamed up with Charles Rangle, future chairman of the House Ways and Means committee to battle these issues. According to Rangle, “future trade restrictions could hinge on findings of unfair labor practices in China” (King, 2006). If Chinese firms were required to meet the same environmental and labor standards of the U.S., would they still hold a strong competitive advantage over other countries? Increasing these standards could cause an increase in operating costs and potentially eliminate jobs in China.
How will this legislation affect the relationship between the two nations and the neighboring countries?
China’s role in the World Trade Organization could be a factor in Congress’ decision. China has become a main importer and manufacturer of parts from Korea, Japan, and Taiwan. Legislation or sanctions against China would have a dramatic economic effect on these neighboring countries as well. New operating standards may cause firms to shut down or reduce the amount of imported goods. A recession in these developing economies could result in price hikes or supply shortages for many U.S. businesses as well. China’s integral role in the worlds’ manufacturing process has made it near impossible to regulate their standards without these negative externalities.
China’s large investment in U.S. treasury bills also could have a large impact on legislation decisions. This $300+ billion investment gives China an edge when dealing with financial policies. Some politicians forecast that implementing tougher regulations might cause China to search elsewhere for business. The new exporting rule dealing with dual-use goods has already hindered U.S. competitiveness in the Chinese market. Adding tariffs or other obligations further increases the cost and complexity of these trade relations.
Some have proposed that limiting trade with China would help the U.S. economy by creating jobs and stimulating national business. However, many of these businesses rely on these low cost imports and demand for exports, as well as outsourcing jobs and manufacturing tasks that would otherwise create insufficient returns. Since 2002, U.S. exports to China have increased 90%, further emphasizing U.S. dependence on China (Bader, 2006). Wal-Mart, the larger retailer in the U.S. imports heavily from China. Limiting this or increasing the costs to import would dramatically affect U.S. consumers. Congress must decide whether battling China on human rights issues and corporate responsibilities is worth the potential consequences to the worlds’ economy.
Submitted by Ryan Maaskamp
Entry Filed under: Pre-Departure, Beijing, China, Misc.
3 Comments Add your own
1. Chris Carr | November 27th, 2006 at 8:42 pm
Ryan,
Good topic and post.
Do you agree with Pelosi as stated in this WSJ article re: how we should view China?
And, do you think her public position on China sincere or for show?
Finally, what do you think is the most effective way to deal with the Chinese government on these types of very important trade issues — a public calling out (Exhibit A: Pelosi article) or behind the scenes diplomacy?
No right answer here. Just curious as to how you feel on these issues.
2. Ryan Maaskamp | November 30th, 2006 at 11:24 pm
I agree with Pelosi that China’s labor practices and corporate responsibility policies need to improve. However, that’s not enough to say our China policy is a complete failure. I believe many Chinese workers are content with wages and working environments. Those critical of labor practices might not consider that these working conditions could be an improvement from previous employment opportunities, or fail to see that these factories provide many workers with income that support their families. There are some cases, as shown in the China Rises video, that demonstrate the dysfunction and egregious acts of Chinese firms. U.S. legislation should serve the interest of these individuals and not a protectionist view of the U.S. economy. It will be interesting to see if my point of view changes when I visit a factory in person and my senses take over. That is after all one of the reasons I signed up for the trip; to experience new business environments and seek new opportunities.
I don’t think any legislation regarding China’s trade agreement will occur in the near future. This shift in power is a chance for those to flex their political muscles and create a buzz about certain issues. Besides, democrats don’t have a two-thirds vote to override a presidential veto, so the likelyhood of any legislation getting through is very low. I believe any pressure on China’s currency or workers’ rights policies will be handled discretely in regard to the importance of respect in Chinese culture. If Congress wants to change these policies they must remember that China has leverage with its large investments in treasury instruments. The threat that China will dump these instruments and destroy the value of the dollar must be considered when creating these new trade agreements. This is a very complicated issue since it affects the lives of so many people. I’m interested to see how Congress will handle the issue.
3. Andrew Gardner | December 15th, 2006 at 6:11 am
Ryan, this post really got me thinking. On one hand, I really believe that China should not be forced into changing any of its labor laws. The majority of its economic advantage in manufacturing comes from being able to pay low wages and expect long work weeks from its citizens. In addition, while working conditions are not great by American standards, they are rapidly improving as China continues to develop. If China was required to conform to a labor laws to continue trading, the country would surely lose much of its competitive advantage. Not only would China be hurt by this, but American businesses and consumers would be hit with much higher prices.
Another part of me keeps thinking of the disabled man in the China Rises video that must crawl on his hands and knees due to work accident. Maybe I should pay a little more at Walmart for my t-shirt in order to workers in other countries are protected from horrible accidents such as that? This is a difficult question that has no cut and dry answer.
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