May 20, 2005 4:00 AM PDT

Getting tough with China?

As a trade dispute escalates between the United States and China, the U.S. tech industry is keen to see changes by the Asian giant--but opinions vary on how hard to push.

U.S. business and labor leaders agree that China ought to adjust the value of its currency and do a better job of protecting intellectual property rights. But while industry leaders favor milder steps, worker advocates want more aggressive action. They argue a sweeping tariff on Chinese goods may be needed to stop job losses and level the playing field.

Critics, though, warn such a move could trigger a trade war that hurts U.S. tech companies, many of which have operations in China.

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What's new:
Worker advocates want a tariff on Chinese goods to protect American jobs and even the playing field with the country's manufacturers.

Bottom line:
Critics warn such a move could trigger a trade war that hurts U.S. tech companies, many of which have operations in China.

More stories on China

There's still more at stake, said Richard Suttmeier, a political science professor at the University of Oregon. If the involvement of U.S.-based tech companies in China declines, Beijing's ambitious plans for technological advancement could wind up threatening America economically and on the geopolitical stage, Suttmeier said.

"We're better off if we keep China integrated into this global system whereby their technological progress is co-evolving, if you will, with the technological progress of multinational companies," he said.

China and the United States have been butting heads on trade matters for years. A key flash point is the U.S. goods trade deficit with China, which rose from $29.5 billion in 1994 to $162 billion last year.

The countries have grown more combative in the past week or so. The U.S. has moved to impose quotas on certain Chinese textiles and apparel products, and U.S. Treasury Secretary John Snow chided China publicly over its currency policy.

Many observers claim China effectively subsidizes its exports by pegging its yuan to the dollar, resulting in a currency value that is artificially low. In a report to Congress on Tuesday, Snow did not go as far as to claim that China manipulates the currency exchange rate to gain an unfair trade advantage. Still, he warned the country should change its ways.

"Current Chinese policies are highly distortionary and pose a risk to China's economy, its trading partners and global economic growth," Snow said in the report.

Although China has said it aims to reform its currency policy, this week its stance on the issue seemed to stiffen. According to official news service Xinhua, Chinese Premier Wen Jiabao said China will not yield to outside pressure in exchange rate reform. "The reform of (yuan) exchange rates is of China's own sovereignty," he said, according to Xinhua. "Any pressure or media play-up, or to politicize an economic matter, will not help solve problems."

Trade deficit with China

A stronger yuan could affect the tech industry in a number of ways. Products and services coming from China--which run the gamut from consumer electronics to software coding--would likely increase in price. If the price rises are significant, global companies could decide to locate operations elsewhere and U.S. operations could become more competitive. Consumers, meanwhile, would likely pay more at their local Wal-Marts, Gartner analyst Martin Reynolds said.

Given that such a pocketbook pinch could translate into public displeasure, Reynolds expects the U.S. government to back down on the currency issue. "By and large, it's saber-rattling," he said.

The U.S. technology industry has other concerns about trade with China. One is the still-rampant software piracy in the country. Losses from software piracy in China totaled $3.6 billion in 2004, making it second only to the United States in piracy damages, according to a study from research firm IDC and the Business Software Alliance trade group.

Another issue is market access. Particularly worrisome to some are draft regulations in China on software procurement by government entities. The proposed rules "essentially block international companies

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34 comments

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China does not play fair
my psycho ex-boyfriend can't get work because the IT jobs are being offshored to India and China. What is worse is that China puts up barriers to US goods and services, so we cannot sell them enough to create jobs here. China plays by a social system rather than an economical and fair one.
Posted by (1 comment )
Reply Link Flag
And this is different from the US exactly how?
However you look at it, the US isn't the "good guy" here -- at least when we're taking about the "US" as political entity.

Don't confuse the populace (of any country) with its government.
Posted by furl12 (50 comments )
Link Flag
that is a very naive outlook
nothing is that black and white and you cant just blame china for all your problems. the companies that are outsourcing are US companies. the reason is because health care here is getting so expensive and inefficient... and who do you think is to blame for that? the decisions are made by US companies and the US govt to propogate the problems and then they turn to their own people and playing on ignorance, cast all the blame on china. And btw, as soon as US enforces tariffs or some other punitive measure, China will stop buying US treasury bonds, the deficit will SURGE and the economy will become even worse... your pick.
exploit cheap labor for own profits and when it turns around and bites you in the hand, you wine and complain about 'fair trade'
Posted by (4 comments )
Link Flag
Global economy WTO.. what is fair?
Let's not start throwing darts at anyone yet. Everyone will say that China is taking our jobs, ok so what about the foreigners from other countries coming into the US and taking our jobs. If we are to be one global economic system looking to improve, we shouldn't be having taxing each other to have FAIR play. It's one of the inefficiencies in today's world and hold us back in terms of progression into the futuer. Look at what we have in the US right now that is sold from China. You know those people who are complaining and ranting over this issue. It's the people who are already RICH!! Take a look around you people!!! If I go into any store out in the West over 80-90% of the stuff comes from China. Poverty in America isn't gone yet so why quibble over this!! The people can't afford the basic standard of living or else poverty would have dissappeared and you are going to raise the cost of the goods for the poor? How considerate!!!
Posted by dizzymon (343 comments )
Reply Link Flag
China and concern
Why this constant whining about China, India, etc. when we can do it better than every one of them? It is beyond a doubt that our American "civilization" is declining - one sure sign of our decay is the decline in the quality of human capital - our high school education system and its output. When the government and business have covertly agreed that American labor is expendable easily as throwing a tissue into a wastebasket, why can't we boot and suit up to better ourselves, instead of complaining against others taking our jobs. Others WILL take our jobs, because our so-called business leaders are generously handing them out. China and India will make the best use of these opportunities. After all, isn't this the "American way?"
Posted by Nperry (8 comments )
Reply Link Flag
Deal With China At The Level Of The Level Of The International Fora!
China should understand that the USA is represented by groups of individuals whose origins (as homosapiens) span all corners of the globe and targeting the USA with unfair trading policies is akin to an affront to international communities and norms. Should these unfair trade, dishonest intellectual property and other practices continue then actions at the level of institutions such as the World Trade Organization, the United Nations (UNCTAD) et cetera should be taken to bring China into compliance. If they do not; then, how about a global boycott of their goods and services since the once apartheid (racial) South Africa can serve as an example of such an international resolve!

;-)
Posted by (187 comments )
Reply Link Flag
It'll be the same tatics used in the search for WMD
If we can't polically crush them we'll just start another war. Isn't that called imperialism? How appropriate! If they spend those BILLIONS on the war on EDUCATION. Maybe then we'll see some improvement in human capital. Teachers are underpaid, over worked, and do not have all the tools they need to do their jobs. Of course they also need to restructure the educational system all together but we can't afford it with the billion dollar price tag that is for this war we have in the middle east. Do the math!!! BILLIONS!!!! Just giving a portion of that for public services will be beneficial to the American people.
Posted by dizzymon (343 comments )
Link Flag
China and Concerns
As long as the government here and business leaders lack the will and spine to confront China, why wouldn't China get away with what it can? We're practically subsidizing China by opening Walmarts everywhere.aren't we? So either we stop shopping at Walmart for cheap goods, manufactured in low-cost China or we change lifestyles here to be able to save enough to affort shopping at Bloomingdale's or other expensive places.
Posted by Nperry (8 comments )
Link Flag
perhaps the US should learn to play fair first
people here throw stones at chinas policies, which suck quite frankly. BUT they are no different to the subsidies and Tax breaks US gives to export goods heading to europe and Australasia. Before you complain about unfair fix your own ******** policies that hurt other countries with unfair practises.
Posted by (16 comments )
Link Flag
BUY AMERICAN
Simply..buy American goods...Made in America!
Now...where are those American manufactures again?

Ohhh..yeah..they're in; China, India, Mexico...etc...(thank you NAFTA)

Close to extinction; the American factory worker.
Posted by daxwax (5 comments )
Reply Link Flag
That's right man..
..Used to be you could atleast buy american by choice. now you can't even tell anymore. I'm just sick of companies like walmart destroying america's middle class jobs.

Who has the power here? We do. We are the consumers. One Dollar = One Vote.
Posted by lewissalem (167 comments )
Link Flag
As long as [Global] American Corps...
continue to make tons of money by off shoring labor and manufacturing, they will not allow the government to really change any trade laws or impose tariffs.
Posted by gfsdfge (130 comments )
Reply Link Flag
Bring back American jobs to America
We should put a tarrif on alll China goods and not worry about American companies that we have operating in China! Those are American jobs anyway and they should bring them back home to the American worker! The american companies didnt mind footing the bill to move our jobs to China so they shouldnt mind footing the bill to bring them back home. China can't be trusted anyway and shouldnt be.
Posted by (2 comments )
Reply Link Flag
Bingo
Couldn't have said it better myself.
Posted by Christopher Hall (1205 comments )
Link Flag
Why would they do that?
Corporate America is not going to allow the puppets to put any tariffs or trade laws in place while they're making so much money. We'll have to wait until middle class Americans stop buying. Yes, it will cause a global recession, but it's the only way that it will happen.
Posted by gfsdfge (130 comments )
Link Flag
Watch where the money goes
Look at it this way: when American companies pay American workers for their labor, who in turn pay Chinese companies for their products, the Chinese companies pay their Chinese workers (unless, of course, they've been killed in a mine explosion). These Chinese workers then buy CHINESE goods, not American or Japanese, which keeps the money circulating in their economy.

The US at this point in time has a greater amount of money flowing out than it does flowing in. The well isn't dry, but that's the way it's going to end up if China is allowed to continue their current trade practices, which is EXTREMELY harmful to the US economy.

People need to stop looking for the bargain and start shopping American. Sure, you save $0.10 today by buying Chinese, but you're screwing our country's financial future for your children while financing China's rise to dominance.
Posted by Christopher Hall (1205 comments )
Reply Link Flag
The problem is we're on plastic.. spend spend spend..
Um... Most Americans in in Debt cuz of the revolutionary invention of the credit card. Good luck trying to convince the underpaid and overworked. If the US government simply hands out the extra money so we can afford these American made goods rather than go spending on WMD.
Posted by dizzymon (343 comments )
Link Flag
China danger
the second half of the 21st century will be not only an economic threat , but also a military threat.
At the rate we are going we will be like Britain and France . 2nd world regional powers .
If we listen to the Ivory tower boys , they'll own every bit of uimportand real estate also .
They're eating our lunch now !
So if you think its tough now , you wait , a depression is brewing unless we wait up .
Posted by (2 comments )
Reply Link Flag
what is going to happen...
America better be careful, get china too mad and they will stop all shipments to the US. We no longer have the manufacturing capability to produce our own products and would have to start from scratch.

They manufacture just about everything for us - from greeting cards to auto parts to just about everything Walmart sells.

Think what it will do to our economy if we are unable to purchase stuff we use daily for several months.
Posted by (2 comments )
Reply Link Flag
Wouldn't be that bad
Sure it would take a few months to fire up our manufacturing systems, but we could do it. We still have the knowledge to do so. China would be as damaged as we would be. We are their largers customers.

If this keeps up for a generation, then we'll have lost the knowledge and will have to rediscover it. We are already seeing it in the university students. None want to be engineers, they all want to be lawyers. Well Lawyers are overhead while engineers add value.
Posted by InetUser (28 comments )
Link Flag
Who's getting screwed anyway?
It seems if you wrap a flag around a proposal you can get people to consent even when it's harmful to their interests. Don't you understand, the fact that the US dollar is overvalued against the yuan means Americans are *wealthier* than they deserved to be. If the dollar slides to its fair value, you will be able to buy less at stores. How is becoming poorer supposed to benefit you?

While a small minority in this country has been hurt, the most people have benefited from the situation, both directly from cheaper products and indirectly from lower interest rate. Conversely, a small group of people in China--namely those who run the factories--have benefited while the working folks are screwed over. The artificial weakness of the yuan makes them all poorer.

A revaluation would benefit the Chinese people first and foremost. It's simply ridiculous than a country with a billion mouths to feed is a net exporter of food. America already export a lot of agricultural goods to the country. Strengthening the yuan vis-a-vis the dollar would increase that and drive down prices--or at least, keep them under control. And since oil and natural are traded on the world market using the dollar, energy prices could drop as well.

What kind of effect would a stronger yuan have on America? Most Americans would feel it at the gas pump as oil prices almost certainly is going to go up. Since Chinese manufacturers get paper thin profit margin, there is no way they can absorb the change in the exchange rate, so prices will go up in stores. Would it be enough to save American manufacturing jobs? Probably not. It matters little whether a Chinese-made toaster costs $10 or $12 when it cannot be made for less than $20 here. Of course when you're paying that extra two dollars, it matters.
Posted by Chung Leong (111 comments )
Reply Link Flag
An Hemispheric $9 Toaster!
Since the Americas when combined can represent a large enough trading bloc (with the potential "low cost labor" coming from countries such as Mexico, Brazil et cetera - Mexico is one of our closest neighbors and a first line of security anyway, large numbers of Mexicans live and work in the US) then why not as strategic moves US companies can re-invest in some of these Latin American and Caribbean countries as a means of security against any forseeable economic or military threats from a country such as China; I am quite sure that the Americas has the ability to manufacture a $9 toaster that will be below the cost of the $10 one from China. Why do you think their manufacturing skills are superior to those from this region? Besides, we have companies such as IBM, Oracle, Microsoft and many others who can provide the computing capabilities to assist in the analyses and decision-making processes. Are you in a position to defend your analyses that a toaster will always cost $20 to be manufactured in the US while one from China will cost $12 (CIF Value).
Posted by (187 comments )
Link Flag
US trade deficit is unsustainable
The US trade deficit at this current rate is un-sustainable. Something will get to break eventually. Japan and China --- just like Motorola - Lucent in the smaller scale can not go on forever in the vendor financing scheme --- so if the US goes bankrupt --- will Japan and China come over here to collect???? or WWIII will erupt.

This imbalance is the seed of future global disaster....
Posted by Robert Wiseman (19 comments )
Reply Link Flag
everyone is so intent on blaming china...
that is a very naive outlook - nothing is that black and white and you cant just blame china for all your problems. the companies that are outsourcing are US companies. the reason is because health care here is getting so expensive and inefficient... and who do you think is to blame for that? the decisions are made by US companies and the US govt to propogate the problems and then they turn to their own people and playing on ignorance, cast all the blame on china. And btw, as soon as US enforces tariffs or some other punitive measure, China will stop buying US treasury bonds, the deficit will SURGE and the economy will become even worse... your pick.
Posted by (4 comments )
Reply Link Flag
Why is China a "threat" but India "diversification"
We have a funny situation in the West that says it is politically okay to demonize China, but politically incorrect to demonize India.

It may be an outdated attitude left over from the days of Mao Zedong&

Or it may be that American executives still think of India as essentially a colony, where the profit from Indian operations flows back to the US.

Either way, youre right that US attitudes about China are naïve.
Posted by furl12 (50 comments )
Link Flag
What's the problem????
CHina has made it outrageously evident that China will do whatever
it damn pleases to do,
Posted by Earl Benser (4310 comments )
Reply Link Flag
So what can you do about it?
Drop a nuclear bomb? They have many of that as well. That's why everybody tries to get some.
Posted by hackingbear (79 comments )
Link Flag
coffee -- smell it
it's not that they're less expensive it's that they're more innovative, creative and simply better developers. it's good for silicon valley realize they're not at the center of tech anymore and for the U.S. to realize they're not at the center of the world. welcome to the new world order. We've peaked.
Posted by flattailzip (2 comments )
Reply Link Flag
 

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