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Foreign Policy

China Critical to U.S. Competitiveness

Aug 23 , 2011

Last week Vice President Joe Biden visited China and met with top leaders in order to discuss key economic issues. While Biden’s discussions in China largely centered on US debt and yuan policy, it is important to bear in mind an issue of monumental importance in US-China relations that underscores both of these issues: trade. In March 2010, President Obama launched the National Export Initiative (NEI) with the goal of doubling U.S. exports by 2015 to create two million jobs and lift a recovering U.S. economy.

Since that time, progress has been made. In 2010, U.S. exports increased 21 percent to $1.28 trillion. Total exports now account for 12.8 percent of national GDP, which the Wall Street Journal points out is the highest mark since tracking began over 80 years ago.

In addition, the Administration conducted a trade mission to India last November that netted $10 billion in deals that have the potential to support nearly 54,000 American jobs. The successful trip to India was followed up with presidential trade missions earlier this year to Brazil, Chile and El Salvador. U.S. exports to Brazil and Chile alone support more than 320,000 American jobs, according to White House estimates.

But to achieve the NEI’s ambitions of building a robust U.S. export infrastructure to drive economic growth for decades to come, the American business community in China urges specific, targeted steps to enhance U.S. competitiveness in China that will help American companies grab a larger piece of the rapidly developing Chinese market.  

Why China? Much of America’s growth in exports in 2010 can be attributed to China, which is now America’s third-largest and fastest growing export market by volume. In 2010, American exports to China surged by about a third from the previous year to $93 billion, outpacing worldwide export growth by a double-digit margin.  

Today, demand is stronger than ever in China for many American-made goods, including electrical machinery, vehicles, agricultural products and industrial materials such as chemicals, cotton, plastics and rubber.

China will likely remain America’s fastest growing export destination for many years to come. A widening consumer base and growing middle class, which McKinsey & Co. estimates will reach 400 million Chinese by 2015, are pushing up demand for more sophisticated goods and services to satisfy higher living standards. Meanwhile, China is rebalancing its economy to focus less on exports and more on consumption-driven growth, expanding opportunities for American export sales.

Although American export growth to China is impressive, we are giving up ground in an increasingly crowded, and competitive, Chinese import market. For example, export growth from Germany, the European Union countries and South Korea all outpaced the U.S. in 2010 (by 11 percent, five percent and 2.5 percent, respectively) over the previous year.

In AmCham Shanghai’s report, U.S. Export Competitiveness in China, the U.S. ranks 12th in export performance in China among 21 countries and regions compared. Japan, South Korea and the EU countries are America’s major competitors in China, and all hold a proportionally larger share of China’s import market.  

Why is the U.S. lagging behind in China when American companies are world leaders in many industries? In many cases, our foreign competitors have an edge when it comes to exports because of more aggressive and better-financed government export promotion programs.

Germany – often considered the gold standard for export promotion – stations German Centres throughout the world to provide German companies with on-the-ground export assistance and know-how to break into new markets. The German Centre in Shanghai is the largest in the world, supporting more than 90 German companies with 30,000 square meters of low-cost office space and equipping companies with German and Chinese contacts to help build a dedicated customer base.

The U.S.’s competitors also take advantage of generous government-backed export financing assistance. These funds provide companies with such financial services as export credit insurance, working capital guarantees to help launch exports and international buyer financing to secure orders from potential overseas customers.

Despite their countries’ smaller economies, the official export-import banks of Canada, Germany and Japan all commit several times the amount in export financing than the U.S. Export-Import Bank (ExIm), America’s official export credit agency. Wider access to credit not only helps foreign competitors seal export deals but also provides our competition greater latitude to target Chinese customers more aggressively than they otherwise could.

By not being proactive, America is losing out on export deals in China that we can and should win. The federal government can help American companies compete more effectively by stepping up export promotion efforts.

The NEI is a good start and the U.S. business community in China stands behind the goals of the NEI, which has the potential to lay the foundation for years of export growth. Building on the NEI, AmCham Shanghai offers several specific, targeted actions to enhance America’s export competitiveness in China.  

First, a presidential trade mission to China would attract new orders for American products. Presidential leadership is a proven method for raising the profile of goods and services in China. AmCham Shanghai applauds President Obama’s successes in India and Latin America. We encourage the White House to make China the next stop for the president.

Second, the U.S. ExIm Bank should increase export financing for China-bound exports. Although the Bank plays a central role in driving export growth, its loans in support of exports to China amounted to only $15.1 million in new financing last year, or less than one-tenth of one percent of all authorizations. We encourage the Bank to increase its role in export financing in China and to ensure that American exporters, especially small- and medium-size businesses, have access to the same financial backing as foreign competitors.

Third, the U.S. should enhance funding for federal export promotion programs to increase U.S. competitiveness in China. The Commerce Department’s Market Development Cooperator Program and the U.S. Foreign Commercial Service are two proven resources for boosting exports but are critically underfunded.

Finally, the federal government should leverage innovative city and state export initiatives. States such as Pennsylvania and Washington are leading the way in providing China-focused export assistance for their home state companies. We encourage harmonization of federal and state efforts and for the federal government to support the most innovative state-led programs with federal funding.

American companies produce the best products, employ the best workers and drive world-class innovation. China is the perfect example of a fast-growing market that, despite its challenges, offers the kinds of export opportunities that the U.S. must develop to achieve the goals of the NEI. China’s potential is so great that capturing one additional percentage point of China’s market for imports would translate to $11.3 billion in additional exports, with the potential to support tens of thousands of American jobs.

What is needed are U.S. policies that enhance the ability of American companies to compete in the China market which is critical to achieving the U.S.’s ambitious export goals and to creating thousands of new American jobs in an export led economy.

Brenda Lei Foster is president of The American Chamber of Commerce in Shanghai

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