A NEW TRADE DEAL WITH CHINA: WINNING FOR EVERYONE

Map of China

I remember back in the late 1980’s, when I was a National Account Manager for a company that sold products to Home Centers, Big box retailers, and Paint stores.  At that time there was a big push to put all production into China.  The likes of Home Depot, Lowes, Walmart, Target and other big retailers had massive meetings with all their vendors, threatening to “knock off their products if they didn’t eventually produce them in China, and then pass the savings on to them”.   If it were humanly possible, companies formed partnerships with Chinese manufacturers and made their products in China, shutting down their domestic production operations.  This was commonplace, and was the only way for many companies to stay in business.

At the same time, other companies that made capital equipment, electronics and other types of products saw the advantage of using cheap Chinese labor to make their products and rushed into China to cash in on the cheap labor.  They had to transfer technology and form a partnership with Chinese firms to do so, and they willingly accepted the terms forced upon them.  They also thought that they were paying the price to enter what would potentially be the biggest market in the world, and that cherry was too enticing to pass up!

Chinese hacking was and still is in play.  The Chinese have stolen military secrets, including technology to build hi-tech military planes and warships.  They have also stolen product manufacturing information on many varieties of US products that have had great “value added” benefits in the marketplace.  They also have been paying American citizens in places of power for technology transfers, and this has been an ongoing theme.  The theft of American technology by the Chinese is epidemic, and has cost the USA as much as $600 billion annually, according to the Commission on the Theft of American Intellectual Property.

Obviously, something needs to be done.  Other administrations have avoided any confrontation with China for various reasons, but mostly because companies wanted the cheap labor to be more competitive.  It reached a point where we were potentially losing more than we were gaining and President Trump decided to act.  He did so in a very unconventional manner, using a strategy that he was firmly criticized for.  Many economists and Progressive politicians were firmly against using tariffs, and they painted dire consequences for us if he used this to promote behavior change with trade.

The President decided that he had to act.  He used tariffs to get the attention of China.  He realized that their countries economy was built by and remained tied to high growth that was the result of exports.  He applied targeted tariffs to products that would get their attention, and it worked.  They retaliated with tariffs of their own, but since the balance of trade was in their favor, their tariffs had little effect on our economy.  In retrospect, our tariffs had the opposite effect. 

Our imports from them are the most robust of all their trading partners.  We import almost $500 billion in goods from China, which is close to 20% of all their exports. (www.worldstopexports.com/chinas-top-import-partners)  The tariffs are starting to take their toll!  “Exports from China tumbled 20.7% year-on-year to USD 135.2 billion in February 2019, the most since February 2016 and far worst than market expectations of a 4.8% decline, amid weakening global demand, ongoing trade tensions with the US, and a series of lunar New Year holidays which started in February.”  (HTTPS://tradingeconomics.com/china/exports)

Contrary to the “experts”, this strategy is working.  China is hard at work negotiating a fair-trade deal with the US.  Trump says that this trade deal has “a very good chance of happening”.  “The hardest issues have already been resolved, but the two countries still have to hash out intellectual property theft issues and certain tariffs.  (www.cbsnews.com/news/trump-meets-with-chinese-vice-premier-liu-he-as-ttade-talks-appear-to-wind-down-live-stream-2019-04-04/)  Another site says that “Deal is close, enforcement is sticky point with China”.  (www.agweb.com/mmobile/article/more-trade-talks-with-china-this-week

It looks increasingly like this deal will pan out much the same way as the NAFTA negotiation.  Trade between the two countries will be fairer, and will most likely benefit both the US and China.  Bad practices on the part of China will be curtailed, and a sense of respect will be a requirement on both sides.  Intellectual theft will be curtailed, and no longer will there be a requirement for companies to turn over patented information in order to penetrate the Chinese market.  This has the potential for both countries to benefit, and with more economic intertwining, it will also dampen the march to a new “Cold War”. 

As a retired person, I don’t think this turn of events will have a direct impact on my personal life, but it will on my children and grandchildren.  With a fair-trade policy, and closer ties with this rival, my people will have the opportunity to thrive economically in this new environment.  They will also have a level of tension lowered, so that they will not necessarily worry about conflict with this growing powerhouse of a country that will be a big player with international politics in the future.  This is a great policy for America, and a great policy for China.  Everyone wins, and tensions are reduced.  I look forward to this deal coming to fruition in the next 4 to 8 weeks.

REFERENCES

www.agweb.com/mobile/article/more-trade-talks-with-china-this-week  “Deal is close, enforcement is sticky point with China.”

www.cbsnews.com/news/trump-meets-with-chinese-vice-premier-liu-he as-trade-talks-appear-to-wind-down-live-stream-2019-04-04/  “Trump says trad deal has “Very good chance of happening”.  By Grace Segers  4-4-2019  “Hardest issues already resolved, but the two countries still have to hash out intellectual property theft issues and certain tariffs.”

www.worldstopexports.com/cinias-top-import-partners  1.  US $479.7 billion in imports from China (19.2% of Chinese exports)

HTTPS://tradingeconomics.com/china/exports  “Exports from China tumbled 20.7% year-on-year to usd 135.2 billion in February 2019, the most since February 2016 and far worst than market expectations of a 4.8% decline, amid weakening global demand, ongoing trade tensions, with the US and a series of lunar New Year holidays which started in February.”