Topic Category: Politics

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)
Topic: Politics
Comment (0) Hits: 3934

While it appears that Pat Buchanan is no longer a serious threat for the Republican nomination, his attacks on free trade will continue to have an undeniably negative impact throughout the remainder of the presidential campaign.

In the court of U.S. public opinion, it's important to separate the rhetoric from the reality. The facts can get lost in the fiction of shrill campaign politics. And the facts on NAFTA differ greatly from the picture painted by Mr. Buchanan in his protectionist tirades.

NAFTA Is Promoting and Preserving U.S. Trade Gains

In NAFTA’s first year, trade in North America grew by 17% to $350 billion. U.S.-Mexico exports grew even faster, by 20.7% to $100 billion.

In 1995, despite Mexico’s economic crisis, NAFTA worked to preserve and promote U.S. export growth. While Mexico’s economic downturn undeniably dampened demand for U.S. goods, Mexico remained the third-largest consumer of U.S. products in 1995, purchasing more goods from the United States than all U.S. export markets except Canada and Japan.

These numbers may not mean much to Mr. Buchanan, but they have a real impact on the average American wallet. Contrary to his arguments, the growth of U.S. export industries directly benefits U.S. workers and businesses. A February 1996 study by the non-partisan Institute for International Economics found that since the late 1980s, both small and large firms that manufacture exports have experienced almost 20% faster employment growth than non-exporting plants.

Furthermore, firms that export provide higher paying jobs than firms that sell only to the U.S. market. In fact, workers in the export sector earn up to 15% more than those in the non-export sector. The report concludes that “deeper export and import reliance would raise average American living standards.”

If the United States Shuts Itself Off Behind Trade Walls, U.S. Businesses and Workers will Suffer

While Mr. Buchanan wants to eliminate NAFTA, North American businesses want to expand it. In a survey released February 1996 by the Bank of Montreal/Harris Bank, 80% of the business leaders surveyed in all three countries — Canada, the United States and Mexico — agreed that NAFTA should be extended to countries in Central and South America. By a four-to-one ratio, a majority of the business executives surveyed expressed confidence in NAFTA, citing the positive impact to their businesses of expanding markets, elimination of trade barriers and increasing competitiveness.

U.S.-Mexican Production Partnerships Benefit the U.S. Economy and Workers

NAFTA is attracting production and job opportunities into North America from beyond our borders. NAFTA’s rules of origin and Mexico’s improving manufacturing competitiveness are encouraging companies outside the NAFTA region to establish or relocate production partnerships and other business operations in North America.

Because of the strong supply links between the two countries, this is good news for workers, suppliers and other businesses in both the United States and Mexico.

A 1995 study by the U.S. International Trade Commission showed that Mexican-based production-sharing facilities are much more likely to utilize U.S.-made parts than are similar facilities located in Asia. According to the report, U.S.-made components account for more than half of the value of U.S. imports from Mexico under duty-free production-sharing provisions, while they typically account for less than one-quarter of the value of such imports from Asian countries. And the greater number of components used in the production of Mexican products, the more U.S. jobs are required to support this supply.

In 1995, Mexico’s imports of U.S. intermediate goods for use in production partnerships actually increased by more than 9%, According to SECOFI, Mexico's Ministry of Trade and Commerce. And while Mexico’s total imports from non-NAFTA countries dropped 23% for the first 11 months of 1995, Mexico’s total imports from the United States remained above their pre-NAFTA levels.

Protectionism Doesn’t Work

Point by point, the reality of the evidence refutes the rhetoric of Pat Buchanan’s “Fortress America” protectionist trade policy.

In its February 1996 report to the President, the Council of Economic Advisors found that “open economies...grew by an average of 2.5 percentage points more per year (over a 20-year period) than did closed economies.” Turning our backs on our trading partners, sealing off our borders and raising tariff barriers would, indeed, hurt the very constituency that Buchanan claims to champion. U.S. workers as well as businesses would suffer.

NAFTA has shown itself to be effective in promoting North American economic and business growth, through difficult times as well as good. This is a partnership we can, and should, be more than happy to live with.

This article appeared in The Exporter, April 1996.
Topic: Politics
Comment (0) Hits: 5400

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