Sat, Feb 11, 2006 - Page 9 News List

Why China scares the US

By Will Hutton  /  THE OBSERVER , LONDON

ILLUSTRATION: MOUNTAIN PEOPLE

It's the next big thing. In the UK we may take China seriously, but it's not the overriding economic issue. In the US it's becoming a national obsession. Every month that passes there's another China statistic that spooks Congress yet more and ratchets up what is approaching paranoia.

China is the next economic and military superpower, runs the argument; and because it's communist, its methods are dark and its ambitions even darker. The US had better stop it now, or suffer the consequences.

It doesn't matter that after 25 years of near 10 percent growth that has created a US$2 trillion economy, most people still can't name a single Chinese brand, and that its aspirant multinationals -- Lenovo, Huawei, Haier -- are tiny by western standards. By this stage in its growth path, Japan was boasting Sony, Honda, JVC and Toyota, to name but a few -- a telling comparison about China's genuine autonomous economic strength.

Nor does it allay American concern that three-fifths of China's exports are made by US, European, Japanese, Taiwanese or Hong Kong companies and not by native Chinese; they don't have the expertise, brand or technology. Made in China, as the Chinese increasingly lament, does not mean made by China. This is the world's final assembly center, not its workshop.

In the US, that's too nice a distinction; last year the US ran the largest bilateral trade deficit of any country in history. It imported US$240 billion of goods from China and exported a mere US$40 billion back.

The ratio of six to one is, says Fred Bergsten, director of Washington's Institute for International Economics, twice as bad as the ratio at the peak of the concern about Japan's export flood in the 1980s. And with Chinese exports growing at 25 percent last year, there's no sign that the ratio -- or the deficit -- is going to do anything but get worse.

the china card

Six industries have lobbied Congress and won special protection: textiles, clothes, wooden furniture, color TVs, semiconductors, and even Louisiana shrimpers. They are the harbingers of more. In the Senate last summer, New York's Charles Schumer managed to get a two-to-one majority on a `dry-run' vote calling for 27 percent tariffs on all Chinese imports unless the Chinese revalued their currency. Schumer promises a real vote unless the Chinese do more than the trivial adjustment that they made last summer.

On his state visit to Beijing in the autumn, US President George W. Bush received a promise from President Hu Jintao (胡錦濤) that China would eliminate its trade deficit. The problem is that no one can imagine how it will do that unless something changes, notably the dollar devaluation and yuan revaluation that the Chinese seem to want to resist to the last.

Big corporate America is keeping quiet; indeed, it is partly to blame for the imports. Many companies have done well by playing the China card, sourcing production in China to pay wages a 30th of those in the US, lowering costs decisively and winning a big boost in profits. Both Ford and General Motors have sourced key parts in China to their advantage; and they are representative of a general move.

The US's largest retailer, Wal-Mart, imports US$20 billion worth of Chinese goods a year; on one estimate, China has saved US consumers cumulatively US$100 billion since 1980 in lower prices.

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