From 1991 through 1995, U.S. exports to the People’s Republic of China increased 86%. And if exports routed to China via Hong Kong were included, the numbers could be 37% higher. The 1.2 billion consumers have become the United States’ 13th largest export market, edging up from 16th place in 1991.

U.S. exports to China support over 200,000 high-wage U.S. jobs. This emerging powerhouse has one of the fastest growing economies and is expected to grow by 10% -12% annually through the year 2000. It’s already the 3rd largest economy and could become the largest early in the 21st century. As its economic strength grows, its need for U.S. goods will increase as well.

Reduction in Chinese Trade Restrictions Are Anticipated to Accelerate U.S. Exports

Many exporters believe that access to China’s market has been hampered, significantly contributing to our large trade deficit. Recent Chinese tariff reductions could positively affect this.

On April 1, China implemented 4,000 tariff reductions on a wide variety of imports, ranging as high as 50% for pharmaceuticals and related chemicals. Coupled with China’s elimination on December 31, 1995, of 176 quantitative restrictions, import controls and licenses, U.S. exports should increase at a further accelerated rate. Many, however, feel much more needs to be done, especially in terms of intellectual property protection.

Other Changes Could Benefit U.S. Exporters

As of last year, some 8,000 Chinese companies had import and export rights. These newly prosperous residents are in a better position to buy U.S. merchandise, including consumer goods.

In February, China began the process of making its currency fully convertible by the year 2000. This will make it easier for Chinese-based companies to import.

The Impact of the China MFN Issue

The annual review process of whether or not to grant China Most Favored Nation (MFN) trading status has made planning difficult for both U.S. importers and exporters. Granting MFN ensures continued access to each others markets.

Denying China MFN would result in the United States imposing such high tariffs on Chinese imports that trade would be severed. In retaliation, China would curtail our imports. This could negatively affect your business if you’re exporting there. Lucrative Chinese contracts and exports would undoubtedly shift to Japanese and European competitors. The myth that U.S. imports would decline would be quickly shattered. Asian low-cost suppliers would quickly fill the gap.

With little at stake in the U.S. market, China would have less incentive to protect intellectual property, or address human rights or nuclear proliferation issues. As a U.S. producer of computer software, for example, the Chinese long-term failure to prevent piracy could become a detriment.

Be Informed and Prepared

The annual China MFN review process can easily be affected by unforeseen non-related issues and events. And this year’s decision can have little impact on next year’s process. Consequently, if you export to China, you must be prepared to identify substitute markets. If you import, it is wise to locate other sources. If you have investments there, know your opportunities, and risks — and have a flexible plan.

This article appeared in July 1997. (PN)

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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