Commerce Secretary Analyzes U.S.-China Trade Relations: The Great (Trade) Wall of China

US Embassy Tokyo ^ | 6/29/2004 | Don Evans

[Willie Green]

(This byliner was originally published in the June 28 edition of the Wall Street Journal and is in the public domain. No republication restrictions.)

(The author is the U.S. Commerce Secretary.)

President Bush believes that open markets and a level playing field are vital to job creation and economic growth. That is why the president rejects economic isolationism and why this administration is continuing to aggressively engage with China. Last week, along with Secretary of Labor Elaine Chao, I led the president's Export Council to China to advance economic engagement, expand access for U.S. exports and address areas of trade concern.

China is America's fastest-growing export market and our third-largest trading partner. Two-way trade exceeds $190 billion and over the last three years American exports to China increased 76%. But maintaining any relationship requires commitment and candor. We are working closely with the Chinese government to ensure that trade takes place through open markets and on a level playing field.

Two months ago, the Bush administration hosted Chinese Vice Premier Wu Yi in Washington for the Joint Commission on Commerce and Trade. The meetings produced positive breakthroughs that will expand opportunities for U.S. businesses. They also resolved seven potential World Trade Organization cases on high-technology products, agriculture and intellectual-property protection. These breakthroughs will expand opportunities for American workers and businesses.

While pursuing cooperation with China, the Bush administration has not and will not hesitate to enforce America's trade laws. We filed the first-ever WTO enforcement action against China, for its discriminatory taxation of U.S. semiconductors. We imposed the first safeguard actions against Chinese textile and apparel imports, and roughly half of all U.S. antidumping cases filed in 2003 were against unfair Chinese imports. However, while some would prefer to litigate for litigation's sake, we are focused on achieving real results, in real time.

Earlier this year, the Bush administration declined to accept two petitions that could have had a highly adverse impact on the Sino-U.S. trading relationship. We did so, in part, because of a belief that dialogue with the Chinese government is the best chance to produce results.

U.S. support for free trade depends on a fair showing from its trading partners. China needs to act on trade barriers because economic distortions compromise long-term potential. Resolving these problems is in the interests of both countries. American companies have the right to expect that their trading partners will treat intellectual property theft as a crime. Estimates show the computer software piracy rate to exceed 90% in China -- costing U.S. industry $2.4 billion in 2002. Sound trading relationships depend on partnership -- not piracy.

China must significantly reduce government micromanagement of the economy and introduce a far higher level of transparency, among many changes, before its transition to a market-driven economy can make meaningful progress. Market forces will not govern China's economy until the state improves the regulatory system and releases control over raw materials, the financial system, real estate, utilities and large enterprises within China.

In northeastern China, the state still owns or controls a majority interest of roughly 90% of all enterprises. Not surprisingly, that region now supplies only 8% of China's output -- down from 14% in 1981. Government control over the means of production radically distorts economic conditions, undermines efficient capital usage and compromises long-term potential. In addition, it creates a tilted playing field.

Last year, I advised China to lift its capital controls so that its entrepreneurs could experience greater financial freedom. Capital controls also compromise prosperity by misallocating a country's wealth. The unsound banking practices funded through the capital controls are equally troubling. China's state-run banks routinely extend loans to state-owned enterprises that are not expected to be repaid. As a result, there is a disturbing level of nonperforming loans in the portfolios of China's state-run banking system. Today, the big four state banks in China are, essentially, insolvent.

Clearly, there is much work to be done to open China's economy and curb government subsidies. That is why we traveled to China with a clear message: The U.S. has opened its markets to you; now you must open your markets to us. The Bush administration is determined because we know that American workers excel on even terms and we recognize that open markets spur economic growth and create jobs in America.

[Willie Green]

 U.S. Trade with China 
(billion dollars)

Year		1991		1992		1993		1994		1995		1996		1997		1998		1999		2000		2001		2002		2003		2004 (4 months annualized)
U.S. Imports		19.0		25.7		31.5		38.8		45.5		51.5		62.6		71.2		81.8		100.1		102.3		125.1		152.4		161.7
U.S. Exports		6.3		7.4		8.8		9.3		11.7		12.0		12.9		14.2		13.1		16.3		19.2		22.0		28.4		35.1
Trade Deficit		12.7		18.3		22.7		29.5		33.8		39.5		49.7		56.9		68.7		83.8		83.1		103.1		124.0		126.6

"China is America's fastest-growing export market and our third-largest trading partner. Two-way trade exceeds $190 billion and over the last three years American exports to China increased 76%."

This is an excellent example of how the administration misleads with statistics. Two-way trade exceeds $190 billion. True. China sells about $160 billion to us and we sell $35 billion or so to them. Both exports and imports continue to rise. But the value of imports is increasing at a greater pace than that of exports, creating the widening trade gap. But by reading the Secretary's note, you might think everything is great with China trade.

China Trade: High Time for a Change in US Policy

[neutrino]

Notice in post number one that the size of the trade deficit continues to grow. China is consuming our manufacturing base.

If you want on or off my offshoring ping list, please FReepmail me!

[y2k_free_radical]

i wish their government owned 100% so they would be less productive

[hedgetrimmer]

open markets and a level playing field are vital to job creation and economic growth

Then he better darn well cut federal taxes and regulation to nothing. Because our competition doesn't bear the same regulatory and tax burden we do.

[sixmil]

Two-way trade exceeds $190 billion and over the last three years American exports to China increased 76%

Looks a little one-way to me.

[XBob]

1 - Thanks for the post, and particularly the chart, so we can see right away, what BS the politicians are peddling.

They are going to kill our country.

[XBob]

1 - Thanks for the post, and particularly the chart, so we can see right away, what BS the politicians are peddling.

They are going to kill our country.