FACT SHEET | January 19, 2011

China Trade

Over the last two decades, the manufacturing base of the United States has shed hundreds of thousands of jobs in states across the country.  A bipartisan and ideologically diverse group of economists have suggested that this is in large part due to unfair trade practices, substantially on the part of the Chinese.  These practices range from currency manipulation, to trying to force U.S. companies to transfer technology to China, to providing potentially illegal subsidies to domestic industries, such as solar panel and wind turbine construction, and blocking U.S. companies’ access to Chinese markets.  President Hu’s visit to the United States this week provides an opportunity to highlight how China’s unfair trade practices are holding America’s businesses and workers back, and hurting our ability to compete in the 21^st century global marketplace. 

Six Ways That China Engages in Unfair Trade Practices

Below are six ways that various economists and trade experts suggest that China is engaging in unfair trade practices:

1. China demands proprietary technology from non-Chinese firms.  China recently announced a plan to force foreign manufacturers to hand over cutting-edge technology in exchange for access to the Chinese market. Under China’s so-called “indigenous innovation” program, foreign manufacturers that want access to vast swaths of China’s market are concerned they would have to enter joint ventures in which they are limited to minority stakesand share critical technologies.
    
2. China does little to prevent counterfeiting. China systematically ignores the manufacture and sale of counterfeit goodsof foreign products.  Piracy in China costs U.S. firms billions of dollars per year in lost sales and forceU.S. manufacturers and content providers to spend money fighting Chinese piracy.   China’s widespread counterfeiting not only harms the business interests of foreign rights holders but also can pose a direct threat to the health and safety of consumers in the United States, China and elsewhere, from contaminated pharmaceuticals and deadly food products to substandard car parts and toxic toys.
    
3. China continues to support illegal subsidies for domestic industries.  Despite its WTO membership, China continues to subsidize industries in direct contravention of global agreements.  In December, the Obama administration initiated a WTO case contesting the subsidies China is providing to wind power firms.  Wind power and other clean energy firmsare the industries of the future, and it is clear China has every intention of trying to subsidize its way to international leadership, instead of competing fairly with American firms. 
    
4. China abets the dumping of underpriced goods.  Hand in hand with its illegal subsidies, the Chinese government does nothing to prevent, and often encourages, the dumping of goods on U.S and other markets.  Many Chinese exporters are state-owned enterprises whose predatory pricing practices are explicitly encouraged by government practices and policies.  When caught, Chinese exporters simply find a way to circumvent those rules as well, devising schemes such ascreating bogus new companies to ship goods,falsely declaring the country of origin or mislabeling the product.  The Chinese government is well aware of these schemes – exporters are not shy about advertising options on the internet – but willfully turns a blind eye.
    
5. China does not crack down on industrial espionage.  Just this month, the U.S.government announced the prosecution of a Chinese national for stealing secrets from Dow Chemical at the behest of the Chinese government.  Though China may deny it, it is hard to dispute the fact that they have certainly done little to discourage such activities.  In fact, the Congressionally appointed  U.S.-China Economic and Security Review Commission, found last year that "the Chinese government has been a major beneficiary of technology acquired through industrial espionage."  Much of the industrial espionage from China is done through cyber attacks.   
    
6. Chinakeepsthe Yuan artificially weakby effectivelypeggingits currency to the dollar..  By manipulating currency exchange rates, countries can gain an unfair advantage over U.S. manufacturers by effectively lowering the price of their exports.  This hurts U.S. manufacturers forced to compete at home with artificially cheap imports. Currency manipulation also imposes a direct cost on U.S. exports, making American goods sold in China more expensive and making it more difficult for U.S. exporters to compete with artificially cheap Chinese goods around the globe. This creates an unfair trade advantage, which ultimately harms manufacturers, workers, and farmers, and contributes significantly to the U.S. trade imbalance.

The Obama Administration is Working to Level the Playing Field With China.  The Administration has challenged a number of China’s trade practices in front of the World Trade Organization and is actively involved in protecting U.S. firms’ competitive interests.  Eswar Prasad of the Brookings Institute writes, “With its actions and words, the Obama administration has signaled that it wants to deal with China on equal terms and will not back off from conflict where it feels that China is subverting the established rules of the game.”  Last week, Treasury Secretary Tim Geithner noted recent progress, explaining, “The United States is on track to export more than $100 billion of goods and services to China this year. Our exports to China are growing at twice the rate of our exports to the rest of the world.” [Brookings, 1/17/11; Treasury Secretary Tim Geithner, 1/12/11]    

The U.S. Trade Deficit With China Has Cost America 2.4 Million Jobs, As China’s Exports Continue to Rise

U.S. Has Lost 2.4 Million Jobs Due to Trade with China. From 2001 through 2008, 2.4 million American jobs were lost or displaced due to the United States’ trade deficit with China, including 91,400 jobs in 2008 alone. [Economic Policy Institute, 3/23/10] NOTE: Click HERE for job loss numbers by state and/or Congressional district

U.S Trade Deficit With China Grew to $25.63 Billion in November; More Than $250 Billion in 2010.  “U.S. exports to China hit an all-time high of $9.5 billion in November, an increase of 1.9% from the month before. But the growth in exports doesn't begin to match U.S. imports from China, which rose 0.9% to $35.12 billion. This pushed the overall U.S. deficit with China up 0.5% to $25.63 billion.” For the first eleven months of 2010, the U.S. trade deficit with China totaled $252 billion. [U.S. Department of Commerce, Bureau of Economic Analysis, 1/13/11; Wall Street Journal, 1/14/11; MarketWatch, 1/13/11]

China’s Exports Rose 31% in 2010. China's December 2010 exports rose 17.9 percent to $154 billion. Overall in 2010, China’s exports rose 31.3 percent over 2009 to $1.58 trillion. This trade imbalance is far from a recent trend; China’s exports to the U.S. have exceeded its imports since 1990.  Still, China is extremely reliant on the U.S. economy as China’s exports of goods and services to the U.S. currently account for 35 percent of the country’s gross domestic product.  Although Chinese imports are steadily increasing across the board, computers and electronics account for the largest share of imported goods from China. [AP, 1/10/11; Center for American Progress, 12/22/10; Brookings, 1/11]

Perpetuating This Trade Imbalance Threatens Our Security.  In a speech to the U.S.-China Business Council last week, Secretary of Commerce Gary Locke implored our government and business community to closely examine current trade policies, explaining, “The gross trade imbalances between our countries are a good place to start, because they have the potential to threaten global stability and prosperity.”  The U.S. cannot continue on this“debt-fueled consumption binge.” [Commerce Secretary Gary Locke, 1/13/11]

China’s Currency Manipulation Hurts U.S. Competitiveness. China's unwillingness to allow its currency to rise in value is hampering U.S. competitiveness in the global marketplace and harming the Chinese economy, Treasury Secretary Timothy F. Geithner said last week. “Beijing's currency policies remain the most contentious economic issue between China and Washington. By keeping the value of its currency low, China gives its exporters an advantage by making their goods cheaper on the international market.” [Washington Post, 1/12/11]

China Is Accused of Providing Unfair Subsidies to Energy Companies, Hurting American Manufacturers. In December 2010, the Obama administration “filed a case against China with the World Trade Organization, accusing Beijing of providing unfair government subsidies to Chinese energy companies. The case is in response to a petition from the United Steelworkers union in September. The union alleged that Chinese businesses are able to sell wind and solar equipment on the international market at lower prices than their competitors can because they receive subsidies. The administration's WTO case alleges that the subsidies are in violation of global trade rules… U.S. Trade Representative Ron Kirk said the type of subsidies the Chinese government employed were ‘particularly harmful and inherently trade distorting.’” [AP, 12/23/10]

International Trade Commission Found That China’s Intellectual Property Infringement and “Indigenous Innovation” Policies Hurt U.S. Businesses. A recent report conducted by the U.S. International Trade Commission, and requested by Senators Baucus and Grassley, noted: “Intellectual property rights (IPR) infringement in China reduces market opportunities and undermines the profitability of U.S. firms when sales of products and technologies are undercut by competition from illegal, lower-cost imitations. Intellectual property (IP) is often the most valuable asset that a company holds, but many companies, particularly smaller ones, lack the resources and expertise necessary to protect their IP in China. ‘Indigenous innovation’ policies, which promote the development, commercialization, and purchase of Chinese products and technologies, may also be disadvantaging U.S. and other foreign firms and creating new barriers to foreign direct investment (FDI) and exports to China.” [U.S. International Trade Commission, November 2010; Senate Finance Committee Press Release, 12/13/10]

China is Racing the U.S. on Education and Innovation

American Students Are Falling Behind While Chinese Students Thrive. According to a recent report from the Organisation for Economic Co-operation and Development (OECD) looking at how students in 65 countries perform in math, science and reading, the United States ranks 15^th in reading, 23^rd in science and 31^st in math. China ranked at or near the top in all three categories. [OECD, PISA 2009 Results]

China is Set to Surpass U.S. in Patent Filings This Year. China bucked an unprecedented decline in global patent filings in 2009, boosting its total by 29.7 percent, while the United States saw a fall of 11.4 percent, the world patent watchdog WIPO said in 2010. In October, Thomson Reuters issued a report forecasting that China would surpass the United States in patent filings in 2011. [Reuters, 2/8/10; Thomson Reuters, 10/5/10]

China Expects Double Digit Growth in 2010

China Expects 2010 Economic Growth to Reach 10%. In the third quarter of 2010, the U.S. economy rose 2.6%. The U.S. economy grew just 1.7% in the 2^nd quarter of 2010 and 3.7% in the 1^st quarter. Meanwhile, a Chinese government official reported that China’s 2010 economic growth was estimated to reach 10% when final numbers are released. [Bureau of Economic Analysis, accessed 1/10/11; UPI, 1/4/11]

Economists Predict China’s Economy Could Overtake U.S. in 2020. In December, The Economist reported, “When Goldman Sachs made its first forecasts for the BRIC economies (Brazil, Russia, India and China) in 2003, it predicted that China would overtake America in 2041. Now it says 2027. In November Standard Chartered forecast that it will happen by 2020. This partly reflects the impact of the financial crisis. In the third quarter of 2010 America’s real GDP was still below its level in December 2007; China’s GDP grew by 28% over the same period.” [The Economist, 12/16/10]

Key Legislation 

The China Currency Exchange Rate Oversight Reform Act of 2010:  Sponsored by a bipartisan group of 20 Senators led by Senator Chuck Schumer, Senator Debbie Stabenow and Senator Lindsey Graham, this legislation would provide less flexibility to the Treasury Department when it comes to citing countries for currency manipulation. It would also impose stiff new penalties on designated countries, including tariffs on the countries’ exports and a ban on any companies from those countries receiving U.S. government contracts.  The sponsors have announced their plans to reintroduce this Congress. For more information on this bill, please see: http://schumer.senate.gov/new_website/record.cfm?id=323135&&&search_field=currency%20exchange.

The Currency Reform for Fair Trade Act:  Last Congress, Senators Sherrod Brown and Snowe introduced the House-passed currency bill (HR 2378) as an amendment to the tax extenders legislation.   The legislation, which directs the U.S. Department of Commerce to treat currency undervaluation as a prohibited export subsidy, would ensure the government is equipped to respond on behalf of American workers and manufacturers by imposing countervailing duties on subsidized exports from countries like China.  (HR 2378 passed the House by a vote of 348-79 last September.)  For more information on the Brown-Snowe proposal for this Congress, please see: http://brown.senate.gov/newsroom/press_releases/release/?id=349DE095-6495-4363-9929-71FC7FE67299.

Foreign Manufacturers Legal Accountability Act:Sponsored by Senator Sheldon Whitehouse, the Foreign Manufacturers Legal Accountability Act requires foreign companies that manufacture and import consumer goods to designate an agent for service of process in the United States and to consent to the jurisdiction of courts in the state where the agent is located.  In doing so, it ensures that foreign manufacturers that injure Americans can be held accountable in our country, protecting American consumers and leveling the playing field so that American manufacturers can compete fairly and keep creating good American jobs. For more information on this bill, please see: http://whitehouse.senate.gov/newsroom/press/release/?id=995055cc-5976-4b17-8bb1-a68f574b0107

The ENFORCE Act: Chinese suppliers are increasingly engaging in fraud and other complicated schemes to evade and circumvent the special U.S. duties that are in place to protect domestic manufacturers from China’s unfair trade practices. Sponsored by Sen. Wyden, the ENFORCE Act would hold Customs and Border Protection more accountable to investigating allegations of duty evasion so that U.S. producers are no longer harmed by this rampant circumvention of U.S. law. For more information on this bill, please see: http://wyden.senate.gov/newsroom/press/release/?id=3ae656bd-ef29-4bbf-b392-04961bc927bd

For more information, please see:

Senator Wyden’s Report on U.S. Trade in Environmental Goods, Updated 12/14/10 http://wyden.senate.gov/download/?id=b06d7ac2-1067-4606-8cf1-a17ba1d7b750

DPC