Labor & Employment Law

U.S. Trade Reps in China Need to Ask: What Will Make America Strong?

By Tula Connell

When U.S. trade reps meet with their counterparts in China next week for the U.S.-China Strategic and Economic Dialogue, they should keep in mind this frightening fact: Last year, the biggest single U.S. export to China was $7.6 billion of paper and scrap metal, while China?s number one export to the United States was $46 billion of computer equipment.

In short, says Economic Strategy Institute founder Clyde Prestowitz, the entire wealth-producing basis of the U.S. economy has been eroding over the past 30 years, and unless this nation develops an industrial policy soon, the days of family-supporting U.S. jobs are gone.

Prestowitz, who served as principal trade negotiator for the Reagan administration, gave a timely presentation here at the AFL-CIO this week on his new book, “The Betrayal of American Prosperity: Free Market Delusions, America’s Decline and How We Must Combat in the Post-Dollar Era.”

He pointed to China’s currency manipulation as a big factor in the trade imbalance between the two countries ($227 billion in 2009), with China suppressing the value of the yuan in relation to the dollar, a practice that decreases the price of China’s exports and increases the cost of American goods imported into China. (The Alliance for American Manufacturing makes it easy to send a message to President Obama and Congress and urge them to stop China’s currency manipulation. Click here.)

But Prestowitz primarily focused on the need for what policymakers clumsily call an “industrial policy” (anyone got any better name we can give it?). He provided a telling example involving Intel to illustrate why our lawmakers need to develop a policy focused on encouraging corporations to stay or re-locate their jobs-producing, research-and-development producing facilities here.

In making its decision to open its newest mircoprocessing plant in China, Prestowitz says Intel was not influenced by the low cost of labor in China, because labor is not a significant factor in building semi-conductors. Intel also understands the quality and production rate will be lower in China. So why is it locating its newest microprocessing plant there and not in the United States?

Investment incentives. Of the $6 billion needed, China’s government is giving Intel $3 billion.

In addition to offering foreign companies deals they can’t refuse, China has a conscious policy of fostering growth among indigenous entrepreneurs, all with the goal of benefiting China. As James McGregor, former chairman of the American Chamber of Commerce in the People’s Republic of China writes, China in fact has an array of policies and initiatives

aimed at building “national champion” companies through subsidies and preferential policies while using China’s market power to appropriate foreign technology, tweak it and create Chinese “indigenous innovations” that will come back at us globally.

When U.S. reps go to the table with China, they represent a variety of interests, including specific corporate goals that won’t necessarily benefit the United States. They face their China counterparts who have one unifying aim: making China strong.

When Secretary of State Hillary Clinton and Treasury Secretary Tim Geithner travel to Beijing for the Summit, they should remember that between 2001 and 2008, 2.4 million jobs were lost or displaced by growing trade deficits with China alone. And then ask themselves: Does bleeding jobs make the United States strong?

Full post as published by AFL-CIO NOW BLOG on May 21, 2010 (boomark / email).