Economist Fred Bergsten is a self-proclaimed free trader who thinks a trade barrier may be needed when it comes to China.
A seeming contradiction? Yes. But Bergsten, director of the Institute for International Economics and a former U.S. Treasury official, says a 50 percent tariff on Chinese products may be required to level the playing field and prevent an outright trade war, where the countries slap duties on each other's products.
A tariff indeed could trigger Chinese retaliation that hurts U.S. tech manufacturing, Bergsten concedes. But he also argues that an undervalued Chinese currency already is harming U.S. producers and fueling calls in the United States for a variety of trade protections.
Bergsten's get-tough stance is part of a debate about how to address a set of trade disputes with China. Perhaps surprisingly, his position echoes that of the AFL-CIO, which backs a bill threatening to impose a 27.5 percent tariff on Chinese products. The union points to a study that showed the growing U.S. trade deficit with China displaced 1.5 million jobs between 1989 and 2003, including more than 46,200 positions in semiconductor manufacturing.
Some tech business leaders, however, favor milder steps than a sweeping tariff.
The controversy fits into a broader discussion about how the United States can maintain its technological leadership in an age of offshore outsourcing and as countries such as China and
India play increasingly large roles in technology services and manufacturing.
CNET News.com recently spoke with Bergsten about his tariff proposal and the prospects for the U.S. tech industry.
Q: I have read that you are calling for an import surcharge as high as 50 percent on all Chinese imports. Is that an accurate description of your views?
Bergsten: It has got to be clarified enormously. I am not calling for a surcharge in the abstract. I and my colleagues here have argued for two years...that China needs to revalue its exchange rate by about 25 percent. They have not done that despite increasing pressure of late from the U.S. government. The fact that they are not doing that is adding enormously to international trade imbalances, the U.S. current account deficit, (and) the risk of a "hard landing" of the dollar and the world economy. Therefore, my view is we need to ratchet up the pressure on the Chinese to take action.
If the Chinese do not move the exchange rate, I think it assures a trade war.
What kind of measures?
Bergsten: The first step that I would propose is that we go to the (International Monetary Fund), which has very clear rules against currency manipulation. If that itself doesn't work, then I would go to the World Trade Organization and file a case that China is violating two or three different obligations that are there, which would require them to move their exchange rate and, if not, face trade retaliation.
And if none of that worked, then more in sorrow than in anger the U.S. would have to threaten and implement--if they don't still come along--an import surcharge on all products from China.
Why 50 percent? Bergsten: Why do I say 50 percent? Well, we need a 25 percent change in the currency. An import surcharge applies to only half the trade balance (the imports), so you have to do twice as much, 50 percent. But it's not as if I am suggesting that an import surcharge on China is a good thing or should be done tomorrow. It's at the end of a long series of events that do need to be pursued aggressively in order to get China and the rest of Asia to move their exchange rates.
What would be the effect of what you are calling for on the U.S. tech economy, especially the high-tech industry and high-tech workers? Bergsten: I haven't done detailed analysis. The whole objective of the exercise is to improve U.S. competitiveness against Chinese products. The way that works of course is that an import barrier would increase the prices of imports from China and therefore make U.S. products more competitive.
Keep in mind that the objective of getting China to move its exchange rate is not only to increase the value of the Chinese exchange rate, but the value of all the Asian exchange rates, because the other Asians are holding their currencies down because China is holding its currency down. If China revalued its currency by 25 percent, which is the proposal, then the other Asians would go up at least halfway. They might go up also 25 percent. So you would have a substantial change in the competitive relationship of products coming from all of Asia--Japan through India--into the U.S. That would improve the competitive position of our domestic industry in every sector including high-tech.
What about the effect on the Chinese tech industry and the tech workers in China? Bergsten: The objective is to dampen their price competitiveness, which I would argue is artificially subsidized by an undervalued exchange rate. When you maintain an undervalued exchange rate, it's like having an export subsidy and that is artificially improving the competitiveness of Chinese industry and workers.
U.S. labor advocates believe a stiff tariff may be needed to level the playing field with China, given this perceived undervaluation of the yuan. But critics worry about sparking a trade war that could hurt both sides. How do you respond to concerns about a trade war? Bergsten: I worry about it. That's why I would put it at the end of a list of things I would do. But I almost have the opposite worry. If the Chinese do not move the exchange rate, I think it assures a trade war.
Really? Bergsten: Yeah. And we're seeing it right now. Every week, more and more products from China are being hit with import barriers.
It is paradoxical to propose an import surcharge to avoid a trade war. But I think something like that is necessary,
In the Chinese view, negotiations are discussion held before all parties decide to agree to China's decisions. China decrees that Taiwan is part of China - Taiwan says otherwise - China says it's war if Taiwan doesn't agree. Ah yws, Once more, the Chinese are negotiaing. Now, China says that any tariffs are trade war- yet they cheerfully dump textiles around the world because that's China's definition of trade.
The Chines Government is managed by pompous paranoia. Their approach is basically self-destructive, and as the Chinese people begin to leqrn what life could be, that destructio will rapidly occur.
Most Taiwanese people are against uniting with a "communist" China. But I'm not so sure whether that would be the case with a "democratic" China.
Anyways, you have to realize that most grown-up Taiwanese people were brought up to hate/dislike the Communist Party of China and that someday we would march into mainland China to liberate the people there from their miseries. But as that possibility becomes more and more remote, the feeling towards China is really mixed (although not everyone realizes it or admits it). Based on my experience though, most of this anti-China feeling with people in Taiwan boils down to the fear of losing what they own and cherish, the fear of dramatic change in lifestyle, the fear that they would lose control of their lives. (Remember all those people in Hong Kong immigrating to other countries or applying for British National Overseas Passports just before the handover to China? Look at where most of them or where their children are today.)
Anyways, back to our topic. This fear is preventing us from trying to negotiate some sort of deal (starting in private) with China that could perhaps involve making Taiwan an autonomous demilitarized zone. (Keep in mind that most successful corporate mergers starts in private confidential talks before making them public at later stages. So why not apply it to governments.)
By the way, did you know that citizen identification cards and passports issued by the Taiwanese government actually says "Republic of China" (note "China" and not "Taiwan")? Did you know that the Taiwanese government held China's permanent seat in the UN Security council since around 1950 until the early 1970s? Anyways, the problem is not as clear cut as you might think it is.
The Chinese government is an incredibly patient and shrewed negotiator that uses disinformation where there is a clear benefit and always takes the long view. I have incredible respect for the capability of China. It is the difference between Chinese and Christian values that is the source of my issues with China.
you 'll have a different view if you ut tyourself in China's shoe
Just looking back the history, China's Yuan Has been hooked with US$ for more than a decade, and US never say any words about devaluation. actually Americans always enjoy the pleasure of buying the China goods&service at a reasonable price. Just start from last 2 years, American began to shout about the currence manupilation, well that's all about it's own benefits, americans don't want see the growning competetiness from china, and they want to apply the same trick they used to deal with Japan. But don't forget China has his own benefit also, they have 18 million people feed by textle related jobs. For what reason that only american can do for their onw benefits while just ignore others? China has been shipping goods with reasonable price for more than two decades, it's no way to talk about currecnce manuplation now . It all about globalization&competion, it's natual and you can just take it unless you stop the over luxous life style, a life that just bring all the humans into a material trash.
For too long now, the Chinese have been getting a free ride into this country. That has got to stop. Either we take the small hit now or we take a huge hit a few years down the line. The problem with the latter being that by then, all our economic power will have ended up in the hands of the Chinese.
Universities are not vocational institutions. There is no post-graduate coursework to bring any student up to a high level of practice. By definition, it requires actual practice.
You can't wholesale export the lower levels of an industry and expect to preserve or cherry-pick the higher levels; there has to be a farm system of sorts to produce the next wave of higher-skilled people. His world view will eventually result in the higher- and highest-skilled positions being filled by -- you guessed it -- the people who acquired all of the lower-level work and became top practitioners.
You don't become a systems architect through classroom training, or a senior project. With all due respect to Joel Spolsky, one summer project isn't going to make someone become a systems architect, although they'd be further along than doing stints in tech support. What I do takes years of development practice as well as classroom time. No school in any nation can produce me in four or eight years of classroom experience. And I'm not even that good.
What he and many other high level government officials forget is that when jobs are off-shored, the people still remain. Ten years ago, we were telling the millions of manufacturing workers that they would have jobs in high tech and began training them with six week to six month courses. Five years ago we said dont worry; only the low tech of the high tech jobs will be off-shored. Well keep the R&D and really good jobs here. So the x-manufacturing worker got laid off again, and only the Comp-Sci grads got to keep their jobs. Now, were off-shoring R&D facilities. And this guy is saying you need a PHD to stay in high tech. So, how do we get millions of people PhDs? The reality is that they just plain ran out of Spin and are just saying your screwed, go work for Wal-Mart (china). Corporate America is being very easily led by the nose by the Chinese and Indians. The only way it will stop is by the consumer (middle class) losing its buying power (jobs) and triggering a recession that will probably turn into a depression, since most of Europe is all ready in dire straits. The good thing to me is that when I can no longer pay my mortgage, neither will most others.
When I was studying for my degree in engineering I was told that was bull sh*t (BS), go get a masters. I got loans up to my ass to pay for MS (more of the same). Now they are saying that is not enough I need to pile it higher and deeper (PhD) in debt to stay competitive. Why can't they just say your are scr*wed?
What I read here is that Economists still have no understanding of how technical service industries work. This means we in the U.S. will lose what is popularly referred to as high-tech (mostly business process and database software and a good chunk of chip design). What we need to do is protect the industries Economists understand, that revolve around manufacturing. The research and development infrastructure associated with those fields can then be rebuilt and preserved in the U.S. This will include some Biotech and nanotechnology, but we should focus more on Chemistry, Material Science, applied Physics, Mechanical engineering and robotics - high tech manufacturing support fields. That is what we should be studying. Computer science will only help implement the modeling needed in these fields.
I would agree that in the short run, if China lets its currency float and remove its currency controls, it would grow in value against the US dollar. In the mid/long term though, a significant amount of speculative funds would leave China. This would result in downward pressure on the Chinese RMB.
As well, the wealth from the economic boom in China in recent years have been spread quiet unevenly. For much of the poor people though, I'm not sure whether I would call a switch from working in poor farmland to working in factories that would usually be considered unsafe and unhealthy (pollutants) by US standards as an improvement. I won't be surprised that these people would receive an around 25% wage reduction if the RMB increases by 25%. On the other hand, assuming that the RMB holds its increased value for a while, companies would save money (in terms of RMB) on importing materials and equipment. In the end, even if the RMB keeps on holding its increased value and purchasing power, it is possible that exports from China after the RMB increase may even be cheaper for US consumers in terms of US dollars. Be careful of what you wish for.
As well, the few lucky rich people in China (percentage-wise), may exchange a significant amount of money into US greenbacks, and thus putting downward pressure on the RMB and a pressure to increase value of the USD.
So if in the long run, letting the currency float might make Chinese products more competitive, why doesn't China agree to it? Good question. Keep in mind that during the short term, it may result in a shakeout, of inefficient companies, and putting millions of workers on the street in the near future that might result in a political instability that the Chinese leadership wouldn't want.
I think your argument that a stronger Chinese currency might lower prices is a little off. If Chinese goods become cheaper because components they import become cheaper, it implies that the Chinese value-add is small relative to the value of a final product. Also, if this was the case, a stronger Chinese currency would tend to further shrink China's pricing power of this value-add. So in the end, there is no way that a stronger Chinese currency would increase Chinese share of any value chain unless something else changes. Plus, I doubt that none of the gain in a stronger Yuan would go to workers (although you are right that most wouldn't). And if that helps address the divide between the rich and poor even a little, that has to be a good thing. I doubt China's poor will accept being kept out of China's new prosperity forever. And the elevation of China's poor would do wonders for the entire world.
This is a simplistic view but consider: How's the steel industry these days? What happened to our garment industry? Just like other manufacturing sectors the bottom line is price. Shopped at Wal-Mart lately? We don't care where the product was made or who made it as long as we can save a few bucks. We want it cheaper, better, faster etc. Other countries don't place the same value on employees (safety & benefits) as we do and due to currency exchanges can out compete us. Any manager looking to save costs and get that next promotion will do the smart thing and outsource it and the stockholders love it. In our universities we are educating the PHDs you are talking about only they are going back home with our latest technology to build factories and out compete us. Until their standard of living and wages are on par with us we will always be at a disadvantage. Am I for protectionism and tariffs? No, the whole reason Hong Kong exists is free trade we just have to find a way to help promote a level-paying field in the word market or our country will go the way of the buggy whip.
Managers that are making the out-sourcing decisions now dont realize their jobs are next! What I want to know is how can we survive as a service based economy? I understand that manufacturing is adding value to raw materials so when you turn beef into hamburgers you have just added value but how far can this go?
I understand the argument about jobs lost to the trade imbalance, but the impact to the consumer isn't factored into this discussion at all and it cannot be ignored. In an incredible wide range of sectors -- not just high-tech -- China is the preferred supplier for the manufacturing of the products sold to the consumer. This is a result of the low labor costs, speed at which new products can be developed and brought to mass-production, and overall manufacturing capacity (among a myriad of other reasons).
This results in a wider selection of lower priced goods than would otherwise be available. Wal*Mart and Target would be forced to increase their prices by the same or greater margin to compensate for the increased cost of goods for everything they sell thats manufactured in China. I don't have hard data, but I'd venture an educated guess that at least 60% of the non-perishable inventory in these stores originates in China. (I say "educated guess" above as I manufacture products in China -- and other parts of Asia -- for resale in the U.S. through these same chains.)
By ignoring the impact to the cost of the products consumers buy every day, the author misleads the reader into thinking that tariffs are a panacea for a problem that is indeed very serious. I plan to have my youngest son learn Mandarin and Cantonese, simply because I believe that the economic powerhouse for the future will be China. America has no God-given grant to be the driver of the world economy, and when you look toward China you can see a country remarkably similar to the U.S. at the start of the industrial revolution (complete with the same issues around labor laws, environment, etc.) I worry that we've become the Europe of the late 19th century, watching the next great superpower erode our economic prowess and fretting over ways to stave off the inevitable shift of power.
I hate to see it happen, but I can't see how a tariff, or even a revaluation of the yuan can do more than apply a temporary fix to a much deeper problem, and the inevitable (from a free market perspective) solution of China becoming the economic "big dog" of the 21st century.
When I worked in Europe a few years back, the definition of free trade was that the imports had no not exceed domestic manufacturing, ie, fifty-fifty. Free trade should allow for exports and imports to match with a 20 percent maximum difference.
Trade with China is not trade, it is purely job loss, and with it will go all the technology. Smart engineers and designers are not tied to North America. How soon will China be doing the inventing, the patenting, and the rest. USA, you are becoming a third world country. Wake up.
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parties decide to agree to China's decisions. China decrees that
Taiwan is part of China - Taiwan says otherwise - China says it's
war if Taiwan doesn't agree. Ah yws, Once more, the Chinese are
negotiaing. Now, China says that any tariffs are trade war- yet
they cheerfully dump textiles around the world because that's
China's definition of trade.
The Chines Government is managed by pompous paranoia. Their
approach is basically self-destructive, and as the Chinese people
begin to leqrn what life could be, that destructio will rapidly
occur.
But can we wait for natural events?
Anyways, you have to realize that most grown-up Taiwanese people were brought up to hate/dislike the Communist Party of China and that someday we would march into mainland China to liberate the people there from their miseries. But as that possibility becomes more and more remote, the feeling towards China is really mixed (although not everyone realizes it or admits it). Based on my experience though, most of this anti-China feeling with people in Taiwan boils down to the fear of losing what they own and cherish, the fear of dramatic change in lifestyle, the fear that they would lose control of their lives. (Remember all those people in Hong Kong immigrating to other countries or applying for British National Overseas Passports just before the handover to China? Look at where most of them or where their children are today.)
Anyways, back to our topic. This fear is preventing us from trying to negotiate some sort of deal (starting in private) with China that could perhaps involve making Taiwan an autonomous demilitarized zone. (Keep in mind that most successful corporate mergers starts in private confidential talks before making them public at later stages. So why not apply it to governments.)
By the way, did you know that citizen identification cards and passports issued by the Taiwanese government actually says "Republic of China" (note "China" and not "Taiwan")? Did you know that the Taiwanese government held China's permanent seat in the UN Security council since around 1950 until the early 1970s? Anyways, the problem is not as clear cut as you might think it is.
Shawn <-- A Taiwanese.
For too long now, the Chinese have been getting a free ride into this country. That has got to stop. Either we take the small hit now or we take a huge hit a few years down the line. The problem with the latter being that by then, all our economic power will have ended up in the hands of the Chinese.
You can't wholesale export the lower levels of an industry and expect to preserve or cherry-pick the higher levels; there has to be a farm system of sorts to produce the next wave of higher-skilled people. His world view will eventually result in the higher- and highest-skilled positions being filled by -- you guessed it -- the people who acquired all of the lower-level work and became top practitioners.
You don't become a systems architect through classroom training, or a senior project. With all due respect to Joel Spolsky, one summer project isn't going to make someone become a systems architect, although they'd be further along than doing stints in tech support. What I do takes years of development practice as well as classroom time. No school in any nation can produce me in four or eight years of classroom experience. And I'm not even that good.
-Remo
Corporate America is being very easily led by the nose by the Chinese and Indians. The only way it will stop is by the consumer (middle class) losing its buying power (jobs) and triggering a recession that will probably turn into a depression, since most of Europe is all ready in dire straits. The good thing to me is that when I can no longer pay my mortgage, neither will most others.
What we need to do is protect the industries Economists understand, that revolve around manufacturing. The research and development infrastructure associated with those fields can then be rebuilt and preserved in the U.S. This will include some Biotech and nanotechnology, but we should focus more on Chemistry, Material Science, applied Physics, Mechanical engineering and robotics - high tech manufacturing support fields. That is what we should be studying. Computer science will only help implement the modeling needed in these fields.
As well, the wealth from the economic boom in China in recent years have been spread quiet unevenly. For much of the poor people though, I'm not sure whether I would call a switch from working in poor farmland to working in factories that would usually be considered unsafe and unhealthy (pollutants) by US standards as an improvement. I won't be surprised that these people would receive an around 25% wage reduction if the RMB increases by 25%. On the other hand, assuming that the RMB holds its increased value for a while, companies would save money (in terms of RMB) on importing materials and equipment. In the end, even if the RMB keeps on holding its increased value and purchasing power, it is possible that exports from China after the RMB increase may even be cheaper for US consumers in terms of US dollars. Be careful of what you wish for.
As well, the few lucky rich people in China (percentage-wise), may exchange a significant amount of money into US greenbacks, and thus putting downward pressure on the RMB and a pressure to increase value of the USD.
So if in the long run, letting the currency float might make Chinese products more competitive, why doesn't China agree to it? Good question. Keep in mind that during the short term, it may result in a shakeout, of inefficient companies, and putting millions of workers on the street in the near future that might result in a political instability that the Chinese leadership wouldn't want.
Just my 2 cents.
Shawn
So in the end, there is no way that a stronger Chinese currency would increase Chinese share of any value chain unless something else changes.
Plus, I doubt that none of the gain in a stronger Yuan would go to workers (although you are right that most wouldn't). And if that helps address the divide between the rich and poor even a little, that has to be a good thing. I doubt China's poor will accept being kept out of China's new prosperity forever. And the elevation of China's poor would do wonders for the entire world.
This results in a wider selection of lower priced goods than would otherwise be available. Wal*Mart and Target would be forced to increase their prices by the same or greater margin to compensate for the increased cost of goods for everything they sell thats manufactured in China. I don't have hard data, but I'd venture an educated guess that at least 60% of the non-perishable inventory in these stores originates in China. (I say "educated guess" above as I manufacture products in China -- and other parts of Asia -- for resale in the U.S. through these same chains.)
By ignoring the impact to the cost of the products consumers buy every day, the author misleads the reader into thinking that tariffs are a panacea for a problem that is indeed very serious. I plan to have my youngest son learn Mandarin and Cantonese, simply because I believe that the economic powerhouse for the future will be China. America has no God-given grant to be the driver of the world economy, and when you look toward China you can see a country remarkably similar to the U.S. at the start of the industrial revolution (complete with the same issues around labor laws, environment, etc.) I worry that we've become the Europe of the late 19th century, watching the next great superpower erode our economic prowess and fretting over ways to stave off the inevitable shift of power.
I hate to see it happen, but I can't see how a tariff, or even a revaluation of the yuan can do more than apply a temporary fix to a much deeper problem, and the inevitable (from a free market perspective) solution of China becoming the economic "big dog" of the 21st century.
Trade with China is not trade, it is purely job loss, and with it will go all the technology. Smart engineers and designers are not tied to North America. How soon will China be doing the inventing, the patenting, and the rest. USA, you are becoming a third world country. Wake up.