Inside U.S.-China Policy: 2 days of Testimony

Saturday, February 10, 2007 1:42

Two weeks ago we posted How U.S. Policy may affect your operations, and then last week the U.S. filed a MAJOR complaint with the WTO over the Chinese government’s subsidization of Chinese manufacturers.

So the I guess the correlation is proven now and stands at 1.

While following up on the first post, I went to the U.S. China Economic and Security Review Commission website to see what if any recent testimony had gone on there. The council itself is one of the most active in terms of bringing in testimony from all sectors (private and public) to give brief of the commission on various topics.

As luck would have it, they had just held a 2 day on Feb 1 and 2 entitled U.S.-China Relationship: Economics and Security in Perspective where 7 panels discussions (22 speakers) were held.

  • PArt I: Congressional PErspectives
  • PArt II: Administration Perspectives
  • PArt III: U.S-China Relations in Review
  • Part IV: The U.S.-China Economics & Trade Relationship
  • Panel V: The U.S.-China Military & Security Relationship
  • Panel VI: Prospects for U.S.-China Political Cooperation and Diplomacy

For those that have time, I highly suggest devoting time to as much as you can bear. give these are in many cases prepared speeches, there are really no big surprises here, but by reading through the testimonies you can get a real sense of what is gong on in D.C. right now.

For the purposes of this post though, we only have the ability and interest to to introduce the stances of those speakers who came forward during Part IV to cover the business side. Of course, all of the other sections were equally stimulating and filled with facts (ok… some areas are really boring), but as a blog about doing business in China we will dodge some of the Great Firewall keyword searches.

the Economic panel offered the testimony of three speakers:

1) Ms. Thea Lee, Policy Director, AFL – CIO, Washington, DC (HTML) (PDF)

No surprise that the speaker from the AFL-CIO would be unabashed at bashing China from every angle. The members of this organization are probably the most paranoid of the bunch about China as their jobs are the ones disappearing to China, or so they say.

As a numbers guy, I typically like to see someone use statistics to back up an argument, and immediately suspect any argument without. Well, Ms. Lee didn’t offer much in the way of statistics, but had plenty of alarmist statements. At one point she likened the trade relationship to the Apatha Christie novel Murder on the Orient Express:

A group of people jointly commits a murder, each stabbing the victim in a dark train compartment so that no single one can be held accountable.  The truth is there is no single factor that explains the U.S. trade imbalance with China.

In the end, Ms. Lee worked to prove that the whole situation only stands to get worse, and that there is only one way to stand up to china. Pass the Fair Currency Act (H.R. 782) that had been introduced on the previous day (great timing on her part!).

2) Mr. Grant Aldonas, William M. Scholl Chair in International Business, Center for Strategic and International Studies, Washington, DC (HTML) (PDF)

Offering a more balanced viewpoint, Mr. Aldonas starts his testimony by highlighting that there is an obvious imbalance in the system, but that the solutions for that imbalance do not include demonizing China:

We are likely to have far easier time understanding China and addressing the real challenges posed by its rapid rise if we do so with an understanding that China’s actions are taken in their own self-interest, rather than consciously to challenge the United States.

In presenting his testimony, Aldonas breaks his remarks into three sections:

  • Avoiding the Tendency to Sell the United States Short
  • Avoiding the Tendency to Demonize China
  • Debunking Myths

This testimony was by far the most lively on paper and he even twisted a Groucho Marx quote to make a point :Who are you going to believe, Lou Dobbs or your own eyes?” when stating that the U.S. economy is strong, and that many fail to keep that in perspective when worrying about China.

While generally trying not to bore you all to death, Aldonas offered up three very interesting reasons as to why demonizing China is “unfortunate”

  • Treating China as a threat will become a self-fulfilling prophecy if we stay at it too long
  • Those who treat China as a threat often call anyone who disagrees with them naïve, but this obscures far more serious issues from examination and public debate here in the United States
  • Treating China as a threat betrays an insecurity about America’s position in the world economy that is unjustified and, perversely, dangerous

In wrapping up, Dr. Aldonas simply states

“The Commission could do an enormous amount of good by debunking that mythology and focusing Congress’ and the Administration’s attention on what really matters.”

3) Dr. Peter Navarro, Associate Professor of Economics and Public Policy, The Paul Merage School of Business, University of California, Irvine, CA (HTML) (PDF)

Another Alarmist, Dr. Navarro starts off by stating:

The fact is: While American politicians, policymakers, and journalists remain dangerously preoccupied with events in the Middle East, China has emerged, largely unchallenged, as an economic superpower with an ever-growing ability to exert significant influence over U.S. economic, financial and political institutions

His testimony, rather than just being one long rant, is separated into pieces which in the interests of time we will not cover in full:

  • The Mercantilist Foundations Of China’s Competitive Advantage
  • China’s March Up – And Across — The Value Chain
  • China’s Growing Strategic Projection Of Economic
  • Financial and Political Power
  • What Is To Be Done?

while I have trouble agreeing with some of the foundations, I will give Dr. Navarro credit in that his testimony was not only well laid out in terms of building the story, he also does reference various statistics, policies, and other tidbits to bring it all together. Well articulated for sure, he looks at fault on both sides and does give china credit for not only leveraging industrial clusters to bring about supply chain costs, he recognizes that China is not looking to remain a low cost manufacturer for long.

In the end, while an alarmist at heart, his prescriptions are well grounded:

  • America must learn to leave within its means and that means balancing the Federal budget and pursuing an interest rate policy consistent with proper price signals
  • Comprehensive effort to ensure that all countries – not just China – abide by certain standards and norms of free trade

the only problem with is prescriptions, and he essentially admits this during his testimony, is that not enough people fully understand China nor how to accomplish the above. the powers that be are more likely to vote for the Schumer-Graham bill, which Dr. Navarro used as one example of bad policy in the making.

Wrap up:

First, I congratulate you if you were able to get through that without dozing a bit. Unfortunately, congressional testimony is rarely exciting, but for those who are looking to learn more about how U.S. policy shifts may affect doing business with china, it is a necessary thing to understand.

As we showed in our previous post, How U.S. Policy May Affect Your Operations, the U.S. government still has a number of bills on the floor that could radically change your China equation. Just think about how the Schumer-Graham bill would affect your operations if a 27% tariff were levied against all products imported from China….

So, before you go spending 100 million USD in China, make sure it is an investment that is insulated from potential near to mid term U.S. policy changes as any hardening of positions and political posturing could lead to policies that severely change your profitability equations.

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One Response to “Inside U.S.-China Policy: 2 days of Testimony”

  1. All Roads Lead To China » Are You Prepared for Tarriffs? says:

    February 16th, 2007 at 2:35 am

    […] To learn more about the U.S. political side of doing business with China, you can read our posts Inside U.S.-China Policy: 2 days of Testimony and How U.S. Policy May Affect Your Operations. […]