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China trade deficit for 2005 200b Original Source Link: (May no longer be active)
http://www.mercurynews.com/mld/mercurynews/news/12631637.htmNicholas Lardy, a China expert at the Institute of International Economics in Washington, projects the trade deficit with China will top $200 billion this year.
http://www.mercurynews.com/mld/mercurynews/news/12631637.htm
Posted on Tue, Sep. 13, 2005
China's economy merges with U.S. in countless ways
CHOICES HERE DRIVE TRADE DEFICIT
By Michael Zielenziger
Mercury News
Shopping for sweaters at a Target store. Pricing the mortgage for a new home. Searching for a well-paying job as a test engineer.
In these and many other everyday dimensions of life in Silicon Valley, the growing power of China and its robust economy is fast becoming a fact of life, influencing the prices we pay for clothes, the interest rates on a mortgage and the choices our children will confront in the job market 15 years from now.
Yet none of these crucial issues is likely to be directly addressed today when Chinese President Hu Jintao meets with President Bush in New York. In large measure, that's because it's no longer government policy that shapes our relationship with China: Instead, it's the choices companies and individual consumers make every day.
Take trade, for instance, an issue likely to come up in discussions with Hu. China's trade surplus with the world will top $140 billion this year, an increase of 30 percent over 2004. That surplus -- and America's surging trade deficit -- has sparked criticism that Beijing manipulates its currency to make its exports cheaper.
Many on Capitol Hill have threatened trade retaliation unless China revalues its currency up beyond the modest 2 percent raise it introduced this spring. A proposed Senate bill would impose a temporary, across-the-board tariff of 27.5 percent on all Chinese products entering the United States unless Beijing takes stronger measures to ``level the playing field'' for American companies.
Begging to get in
Yet, experts say America's deficit results not from any Chinese government policy to close its markets, but from the opposite. By encouraging foreign investment and making its marketplace so attractive to the Intels and the Hewlett-Packards, China finds itself besieged by multinational corporations and smaller manufacturers eager to set up plants, hire workers and carve out their presence, or export from these factories back to the United States. You may pay Apple for your shiny new PowerBook G4, but the machine itself was assembled in China.
America's soaring deficit with China ``has nothing to do with Hu and a lot to do with the decisions our own companies make,'' said Jeremy Potash, director of the California-Asian Business Council in Alameda. ``This deficit is sourcing-driven . . . It's Ralph Lauren and Liz Claiborne who choose to open factories in China. The decisions about where to source production are made here, in the United States. So whose knuckles should you rap?''
Consumer choices also drive the deficit. Last year, Americans bought $162 billion more in toys, shoes, electronics and bicycles from China than we sold them. Nicholas Lardy, a China expert at the Institute of International Economics in Washington, projects the trade deficit with China will top $200 billion this year.
Clothing the world
In textiles alone, imports of Chinese garments are running 58 percent above last year. Shoppers love the low prices. But faced with the competition, 19 U.S. textile plants have been forced to close this year alone, idling 26,000 workers.
If America forces China to aggressively boost the value of its currency, the repercussions might quickly be felt in our housing market. For whenever China buys up U.S. government debt -- and China's central bank holds an estimated $700 billion in U.S. currency reserves -- it helps moderate our interest and mortgage rates.
Force the Chinese to pay more to hold our debt, and Beijing might take its business elsewhere -- causing an interest rate spike that would devastate the valley's residential real estate market.
Even when it comes to the basic questions of economic competitiveness, China's role in the valley is not only bigger than ever, but less subject to the control of government policy.
Nowhere is China's growing presence felt more profoundly than in the electronics industry, the lifeblood of Silicon Valley. Five years ago, China accounted for a mere 7 percent of the world's market for integrated circuits, the tiny semiconductors that power digital cameras, cellular phones and laptop computers. Now, according to the Semiconductor Industry Association, China represents 20 percent of the market, nearly equivalent to the size of the U.S. market.
``The valley's stake in China is much higher than ever before,'' said Daryl Hatano, vice president for public policy at the SIA.
In the late 1980s and early '90s, American trade negotiators undertook bruising confrontations with nations like Japan and South Korea to win fair access for U.S. agricultural imports, automotive parts and even cellular telephones into long-sheltered markets. But since China agreed to join the World Trade Organization in December 2001, it has opened most of its markets to U.S. imports and with tax holidays and other incentives, welcomes foreign firms to invest in China.
Eager to please
And by most accounts, the Chinese are playing by most of the rules. When the SIA expressed concern two years ago that China was illegally taxing semiconductor imports, the Chinese quickly abandoned the policy. ``They were relatively quick in ending it,'' Hatano noted.
The biggest quagmire in which the government can still play an important role remains the rampant piracy of U.S.-made video games, software and movies. The U.S. Commerce Department estimates that U.S. firms lose $250 million each year through copyright theft, and officials will once again be in Beijing later this month to try to get the Chinese to improve their lax enforcement of copyright protections.
For his part, the Chinese leader this week is likely to announce a few high profile purchases of Boeing commercial airplanes and agricultural commodities to demonstrate China's interest in forging a ``constructive and co-operative partnership'' with an increasingly prickly Bush administration. The Chinese are happy to have their pictures taken at the United Nations with Bush, to burnish Hu's reputation at home before moving on to stops in Canada and Mexico.
``Nobody in Washington is talking about this visit, which from the Chinese side is a good thing,'' said Minxin Pei, a senior fellow at the Carnegie Endowment for International Peace. ``America's China policy is on autopilot -- and Chinese expectations surrounding this visit are low.''
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Contact Michael Zielenziger at mzielenziger@mercurynews .com.
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