Replies

Boeing, GM, Caterpillar gain in China

TRADE AND INVESTMENT: While the US is enduring a massive trade deficit with the Middle Kingdom, big American corporations are benefiting from its economic boom

BLOOMBERG , WASHINGTON
Monday, Mar 03, 2003,Page 12
A US$103 billion trade deficit with China that restrained US economic growth last year disguised sales gains for such companies as General Motors Corp, Boeing Co and Caterpillar Inc.

US gross domestic product expanded 2.4 percent last year, the Commerce Department reported Friday. The deficit with China, the most for any country in US history, also contributed to a record US trade gap of US$435 billion with all countries. The excess of imports over exports kept GDP from exceeding 3 percent.

While the deficit has led the US food and textile industries to complain that China must ease protection for its farmers and let its currency strengthen, companies that make automobiles, planes and heavy machinery are experiencing an expanding market in China's developing economy.

"For the next 20 years, our biggest trading partner will be China," said Starr Tavenner, China director for Boeing's commercial aviation division. Chicago-based Boeing, the world's largest aircraft maker, delivered 22 aircraft worth a total US$1.6 billion last year to China, where air travel is increasing.

Two-way trade grew after China, the most populous nation with 1.3 billion potential consumers, joined the WTO in December 2001. Membership committed China to welcome foreign companies as well as more imports.

"The market is huge, and they're importing a lot of capital goods," said Nicholas Lardy, a China specialist at the Brookings Institution, a policy research organization in Washington.

The US has a "very strong" advantage with those products, Lardy said. European rivals such as Airbus and Volkswagen AG are competing for a share of the Chinese market.

The US trade deficit with China widened by US$20 billion last year, the first year of WTO membership, boosted by a 22 percent gain in imports, Commerce reported last week.

Critics said the numbers prove that China gained the advantage from joining the Geneva-based trade arbiter.

"China's anti-market, beggar-thy-neighbor policies have been responsible for throwing hundreds of thousands of US workers out of their jobs," said Cass Johnson, vice president of the American Textile Manufacturers Institute.

His association represents Cone Mills Corp, Dan River Inc. and dozens of other US textile and apparel makers. They complain of low labor costs and an undervalued yuan that give China a price advantage of as much as 40 percent over US manufacturers.

Farm groups have complained to the George W. Bush administration that China's market for soybeans, cotton, wheat and other agricultural goods continues to be protected.

US exports to China nonetheless rose last year, and the 15 percent, US$3 billion gain was the most among the 10 largest buyers of American-made goods. Exports fell to seven of those countries, including Canada, Mexico and Japan. Each of the two other increases, to South Korea and Taiwan, was less than 2 percent.

In contrast with shipments to China, US exports of goods to all countries fell almost 5 percent lat year, amid an economic slowdown in much of the world.

"They're buying more enthusiastically than any of our other trading partners," said Edward Gresser, a US trade official in the Clinton administration, now an analyst at the Progressive Policy Institute, a Democratic-supported group that challenges traditional party positions on trade and other issues.

Auto sales in China rose 62 percent to 1.22 million vehicles last year, according to Automotive Resources Asia, an industry consultant. US auto exports to China rose almost 90 percent, the US Commerce Department said.

GM, Ford Motor Co and Volkswagen, Europe's largest carmaker, are boosting Chinese production to meet demand.

Exports of US engineering and construction machinery to China rose 58 percent last year from the previous year, benefiting companies such as Caterpillar, the world's largest maker of earthmoving equipment.

US sales to China of non-electric engines and motors rose more than 25 percent, sales of specialized manufacturing equipment rose more than a third, and aircraft sales rose 40 percent, the Commerce Department said.

"One year doesn't make a trend, but it's significant," said Bill Reinsch, a former Commerce Department official who now heads the National Foreign Trade Council, an exporters group representing Microsoft Corp, Ford, Citigroup Inc and hundreds of other US companies.

"It suggests the possibility of developing a healthy relationship where we're not necessarily in balance, but where there's some equity on both sides," Reinsch said.

The US remained a magnet for goods last year, and many products from China simply replaced those from other Asian countries, economists say.

Some imports are from US companies, such as auto-parts maker Delphi Corp, which have set up operations in China. Imports by US companies from their Chinese subsidiaries totaled 18 percent of all imports from China in 2001, up from less than 11 percent a decade earlier, Commerce Data show.

Consumer spending, which accounts for more than two-thirds of the US economy, grew 3.1 percent last year after slowing to 2.5 percent growth in 2001, the Commerce Department reported today.

"We have a growing China taking more and more US exports -- that's a very positive thing -- and US consumers benefit from cheaper products imported from China," said Catherine Mann, at the Institute for International Economics, a policy study group.

"We win both selling and buying."