Debunking the Myth of “Made in China”

A commentary in The New York Times (August 4), headlined “

Yu Xiang

Contrary to inaccurate claims that appeared in The New York Times; Prendergast, Chairman and CEO of the MTA, told us a different story. To begin, Prendergast claimed that the contract has not been totally granted to Chinese companies. The contractor performing the bridge project is still an American company. What has been outsourced to China is only the steel production and fabrication work. The five-year contract is worth US$235 million. Only US$35 million of US$ 235 million is subcontracted to firms in China for importing steel. To be specific, an estimated US$12 million is the cost of producing the steel, and US$22 million is spent on fabricating it into orthotropic panels.

Second, the whole bidding process complied with US law, and the production quality is held to exacting safety and quality standards. The MTA even tried diligently to find an American fabricator of the orthotropic steel decks, working directly with Pennsylvania steel companies and reaching out through the General Contractors Association. But Prendergast claimed that not a single American fabricator had the capacity, the experience and the willingness to tackle the job. Contrary to some claims, price was not a factor in this decision.

Third, the project will create US jobs, instead of sacrificing American jobs. The MTA declares its underlying principle is committed to boosting the economies of New York and America. An estimated 75 to 130 workers will be on site every day for four years, generating up to 1 million hours of work and millions of dollars of wages that will be spent in America. The five-year plan is expected to create 350,000 jobs and US$44 billion worth of economic impact in New York State.

Above all, it is safe to conclude the critiques in the article are groundless. But the tendency and emotion of protectionism revealed in the article is worrying. Serious protectionist barriers remain in US. Here are some examples.

To illustrate, the Jones Act, an antiquated and much-criticized maritime law is still in use now. It requires that all transport of cargo between two US sports be carried by ships that are US-owned, US-built, US-manned, and flagged in US. That is, a cargo ship from China cannot go to Hawaii and then to San Francisco.

On August 5, the Obama administration exercised its executive powers and overturned an International Trade Commission import ban on several Apple products, ignoring the fact some technologies contained within a swathe of its iPad and iPhone infringed on patents held by Samsung. The Obama administration’s overturn of the ban received a strongly-worded rebuke from the South Korean Ministry of Trade, Industry and Energy, which branded US as “protectionist”.

On July 13, US and EU negotiators concluded their first round of talks on the Transatlantic Trade and Investment Partnership (TTIP). But the EU, US’ closest ally, also worried about the protectionism in the US. The EU has complained in the past that these multi-year deals, known as task and delivery orders or “framework agreements” in US, tend to lock EU firms out of the market for extended periods. Michel Barnier, the top European Commission official on public procurement matters said that the EU hopes to make use of TTIP trade talks to address US government contracting practices that some EU firms view as discriminatory.

In late March, the US passed Section 516 of the Consolidated and Further Continuing Appropriations Act, prohibiting government agencies from acquiring Chinese IT products, claiming that Chinese IT products threaten national security. While the law may boost a few US firms to insulate US IT companies from competition by effectively excluding Chinese companies in the short term, in the long run, it will harm manufacturers on both sides of the Pacific. Ten US business associations, including the US Chamber of Commerce and the US Council for International Business (USCIB), also criticized such an unreasonable prohibition.

The experience of Sino-US trade relations in the past decades shows that they can reap rewards if we can resist temptations of protectionism. Candid dialogues and constructive cooperation could bring goods and services and create job opportunities.

During the past three decades, Sino-US trade has advanced at a breakneck pace. In 2012, China was the second largest trade partner of the US and the US is China’s largest export market. According to Chinese statistics, the total trade in goods between China and US amounted to US$484.7bn in 2012, 198 times of that in 1979. The US statistics showed an even bigger figure at US$536.2bn, 226 times of that in 1979. Bilateral trade in services totaled US$38.03bn in 2011.

According to the US Department of Commerce (USDOC), China was the 23rd largest market for US exports in 1979. But China has become the third largest export market for the US since 2007. China was on the list of top five export markets of 42 US states. US companies yield significant investment returns in China. According to MOFCOM statistics from the annual joint inspection on foreign investment enterprises (FIEs) in China, US-invested companies in China generated US$310.4bn in sales revenues and made US$21.1bn in profits in 2011. Despite the global financial crisis, the majority of US-invested companies in China still performed above par, and contributed significantly to the profit growth of their parent companies.

Imports of “Made-in-China” products have also improved the living standards for Americans and kept the rate of inflation low in the US. Trade with China has also brought significant job opportunities in US. In April 2010, the International Trade Administration and the Economic and Statistics Administration of the USDOC released the report “Exports Support American Jobs”, which examines the relationship between US exports and the jobs they support for the period 1993 to 2008. Based on the number of export-driven employment and the percentage of export to China in the overall trade volume, US exports to China supported 128,400 jobs in US in 1993, 112,200 and 16,100 of which are generated by goods trade and service trade, respectively. In 2008, exports to China helped create 494,000 jobs in US, and goods trade and services trade generated 413,600 and 80,400 jobs respectively.

China, for its part, has also gained significant benefits through access to the US market, investment and technology. As an export-oriented economy, exports have played an important role in China’s economic growth, accounting for over 40% of China’s GDP, and contributed over 20% to its growth. As China’s largest export market, the U.S. accounted for about 20% of China’s total export for many years. The US is also the biggest source of China’s trade surplus. Sino-US economic cooperation contributes to China’s industrial upgrading and modernization.

Looking to the future, China and US are still complementary in their economies. In accordance with factor endowments difference, China still has masses of cheap labor and resources, while the US has a technological and capital edge. China exports labor- intensive products to US and imports technological and capital-intensive products from the US. Both countries receive their own unique trade benefits from this situation. Considering there is a large gap in the modern service and knowledge economy between China and US, there is great potential for development and cooperation in these areas.

The Sino-US Presidential Meeting at the Annenberg Retreat and The Fifth Round of Sino-US Strategic and Economic Dialogues (S&ED) has given a powerful political boost to the development of bilateral relations. US President Obama and Vice President Joe Biden have clarified in their speeches that China and the US are both big countries with important influence, and the Sino-US relationship is the most important bilateral relationship in the world. Under the push of politics, the Sino-US relationship has reached a new starting point. But more work needs to be done to develop fully commercial ties and tackles unresolved issues. The new model of relations requires collaboration of the American and Chinese governments, business communities, and other stakeholders in both countries.

Yu Xiang is Research Fellow at the China Institutes of Contemporary International Relations.