China's Threat to Us Economy

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It would appear so, given the rhetoric in recent months by American politicians and some business people, who have complained about the loss of U.S. jobs to China, unfair Chinese trade practices and a Chinese foreign currency policy that favors Chinese exporters who flood world markets with cheap goods. But faculty members at Wharton and other business schools say the complaints are misplaced and driven by politics.

“Free trade is good … and in the long run it’s good for both the U.S. and China,” says Wharton finance professor Franklin Allen. “In the short run, there will be adjustment costs [such as lost jobs]. Protectionist arguments are designed to address the sort of problems that occur in the short run, but protectionism is like pushing against the tide.”

Thomas Rawski, professor of economics and history at the University of Pittsburgh, suggests that China’s economic development in many ways poses an opportunity for the United States. “It’s not that the benefits are unalloyed. Whenever we have changes in the economic structure, some parties are hurt. If the sun is shining, people can’t sell umbrellas. So should we say that the sun poses a threat to the economy because umbrella sellers perform poorly? This is the sort of discussion we are having in our public arena.”

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China has recently been in the crosshairs of the Bush administration for pursuing policies that are said to hurt American companies and workers. Members of the administration and representatives of some manufacturing companies have asserted that the United States is under siege by China, which is the world’s most populous nation, has a red-hot economy and is a major supplier of goods to America. Factory jobs are disappearing in the United States as companies seek China’s bargain-basement wage environment, these critics say, adding that China dumps inexpensive goods in America that U.S. businesses simply cannot produce as cheaply.

On Nov. 18, the talk was accompanied by action when U.S. Commerce Secretary Donald Evans announced that the United States would impose quotas on brassieres, nightclothes and certain fabrics imported from China. On Nov. 26, the Commerce Department ruled that a TV maker in Tennessee was being harmed by unfairly priced color TV sets imported from China and that the department may impose duties as high as 46% on those sets.

A catfight over bras and bedclothes may be fun for headline writers; “bra brawl” was the way one magazine summarized the conflict. But it is hardly a laughing matter that there is rising tension between Beijing and a Republican administration that is ostensibly in favor of free trade, but has shown that free trade has its limits when politics come into play, according to Allen. “I’m not sure they are committed free traders,” he says of the administration. Allen likens today’s China-bashing to the criticism of Japan and its automakers in the 1980s.

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The bra war is not the first time President Bush has shown protectionist tendencies. The administration incurred sharp criticism in March 2002 for taking steps to help U.S. steel companies that said they were being harmed by foreign imports. On Dec. 1,...
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