China - playing by the rules?

US workers are suffering from the increasing influence of China. For instance, a recent Chinese purchase of wind-power operations in Texas stipulated that the wind turbines would be made in China with the $US1.5 billion project creating up to 3,000 jobs in China but only 330 jobs in the US (Gibson 2009).

Thomas Gibson (representing the American Iron and Steel Institute) urged the US government to uphold concern about safety issues in regard to Chinese products, including toys which can make children sick; from sulphur-laden construction materials to shoddy structural steel; while also urging the US government to promote domestic manufacturing jobs which would ensure a greener global environment due to greater environmental protection when compared to China (Gibson 2009).

With US jobs lost to cheaper exports, many Americans end up in jobs that do not compete in trade, such as restaurants and retailing, where labour productivity is about 50 per cent lower, thus slicing about $US400 billion off US GDP while US multinationals profit from Chinese protectionism by relocating jobs to China, India and other Asian destinations. No wonder foreign direct investment into China increased from less than $500 million in 1982 to $40 billion annually in the early 2000s reaching $121 billion in 2007.

Sure Kentucky Fried Chicken and McDonalds dominate China’s fast food industry and General Motors and Volkswagen were the biggest car sellers in China in 2009 (now the biggest car market in the world), but who knows what an increasingly arrogant China will do in the future to achieve further material gain.

As noted recently, China’s General Administration of Customs in December 2009 indicated for the first time that exports were greater than imports for refined oil products. While this may be blamed on China’s over investment in capacity, it may also signal bad news for refined oil product exporters such as Japan and Singapore (Leo Lewis, “Chinese figures rise in influence”, The Australian, January 19, 2010).

It is naïve to believe that China has any other purpose besides upholding its national interest. Take the comments of a Chinese official at a China Mining Conference in Beijing during November 2008 who stated publicly that responding quickly to opportunities offered by financially weakened minerals and metals suppliers was clearly in the interests of individual Chinese firms which should uphold “their national duty”.

Western nations should act to address any harm caused by China’s currency manipulation and other forms of protection.

Further, Western nations should insist that Chinese government companies (under their sovereign wealth funds) do not gain a controlling interest in major Western companies where it may influence managerial decisions related to offshore production, R&D, and technological transfer.

And to achieve important goals to achieve international co-operation on measures to deal with the environment, tougher economic measures (such as a carbon tax on Chinese exports) may be necessary.

If China still refuses to play by the rules of various international institutions and conventions (albeit dominated by the West), so be it. A trade war with China will cause problems as much higher domestic costs in Western societies will initially diminish consumption patterns, although higher national savings will open up more industry possibilities over time.

But to do nothing it is to accept the demise of Western influence and the rise of authoritarian China, a probability that will doom the world to a type of political and economic leadership that will result in a much less fair and prosperous world.

With President Obama indicating during February 2009 that the US would get tough with Beijing on trade and currency to ensure American goods did not face a competitive disadvantage, the battle may have begun. It remains to be seen where the current war of words between the US and China will lead.