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'China bashing' harms US companies
By John Ross |
February 14, 2012, Tuesday
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Print Edition
Print Edition
CHINA'S Vice President Xi Jinping's visit to the US this week highlights crucial choices that will significantly affect economic policies in both countries - and also business prospects for US companies. The US government is giving the visit the greatest attention. China's authorities also accorded it the highest priority. Both sides stressed that economic issues play a central role in the discussions. Given the importance of the visit, it is therefore important to accurately analyze the present trends in the US and Chinese economies and their interaction.
The current US economy recovery is by far the slowest in any business cycle since World War II. The latest available US GDP data is for the 4th quarter of 2011, exactly four years after the peak of the previous US business cycle. In that period, total US growth has been only 0.7 percent. For comparison, at the same point in the previous slowest US business cycle, starting in 2000, growth had been 9.4 percent. In contrast, China's GDP has grown by 41.4 percent in the last four years.
But these percentage figures understate the real situation. China is now the world's second largest economy. This, combined with its rapid growth rate, means the annual increase in China's market is far larger than the US not only in percentage but in absolute dollar terms.
In the last four years, the US economy grew by US$1.1 trillion, whereas China's grew by US$3.8 trillion. Even in 2011, when US recovery was underway, China's GDP increased by US$1.3 trillion, compared to US$600 billion for the US. As it is easier to grow sales in a rapidly expanding market than to increase market share in a slowly expanding one, multinationals see China as their number one target market.
The same applies in trade. Although it will still take a few years for China to overtake the US in total imports, the annual dollar increase in China's imports is already larger than the US and the gap will increase - in 2011 US goods imports rose by US$324 billion while China's increased by US$350 billion.
In short, by every measure, China's market is more dynamic than the US.
Tap into China
Faced with this situation, the logical economic way forward for the US, in attempting to grow more rapidly, would be to tap into the dynamism of China's market. The beneficial effects of such a strategy can be seen not only in Asia, where China is most economies' largest export market, but also in Germany - the world's second largest goods exporter. Germany now exports more to China than the US. This year China will overtake France as Germany's largest overall trade partner. The US, which has even more advanced industrial sectors than Germany, could achieve similarly spectacular export expansion to China - particularly if it would lift politically motivated export restrictions.
The potential for the US export expansion to China was already shown in the US Treasury's report on trade immediately following the 2008 financial crisis - when it noted that by the second half of 2009, US exports to China had increased by 15 percent annually, while US exports to the rest of the world fell by 13 percent. Since then this dynamic has increased further. Between 2007, the last year before the financial crisis, and 2011, US overall exports increased by 29 percent. But US exports to China increased by 65 percent, or US$40 billion. For comparison, US exports to the European Union as a whole increased by 10 percent, or US$24 billion, and US exports to Japan increased by 8 percent - US$5 billion.
In short, the US should be addressing China as its most important potential export growth market. In the last period, in a clear attempt to promote good relations with the US, China has made clear that it is promoting imports from the US --- with considerable results, as the figures show.
Expensive sport
But instead of addressing these economic openings, unfortunately many US politicians are engaging in populist political "China bashing." This is led by Mitt Romney, leading candidate for the Republican presidential nomination.
Daniel Wagner, CEO of Country Risk Solutions, put it recently on the Huffington Post: "China-Bashing Is a Tiresome Sport in American Politics." But, given the figures above, it is a "sport" which is likely to be very expensive for the US economy, and in particular its companies, if it leads to a deterioration of relations with China.
Why should China continue to take special measures to encourage imports from the US if the latter is intent on raising tensions with it? Even if China's government doesn't take any action, Chinese companies are perfectly capable of assessing risk and will conclude relations with US companies play a role.
"China bashing" is likely to end up economically as a case of drawing out a revolver - and shooting oneself in the foot.
John Ross is currently visiting professor at Antai College of Economics and Management, Shanghai Jiao Tong University. He was consultant to Fortune Global 500 companies and from 2000 to 2008 London's director for economic and business policy.
The current US economy recovery is by far the slowest in any business cycle since World War II. The latest available US GDP data is for the 4th quarter of 2011, exactly four years after the peak of the previous US business cycle. In that period, total US growth has been only 0.7 percent. For comparison, at the same point in the previous slowest US business cycle, starting in 2000, growth had been 9.4 percent. In contrast, China's GDP has grown by 41.4 percent in the last four years.
But these percentage figures understate the real situation. China is now the world's second largest economy. This, combined with its rapid growth rate, means the annual increase in China's market is far larger than the US not only in percentage but in absolute dollar terms.
In the last four years, the US economy grew by US$1.1 trillion, whereas China's grew by US$3.8 trillion. Even in 2011, when US recovery was underway, China's GDP increased by US$1.3 trillion, compared to US$600 billion for the US. As it is easier to grow sales in a rapidly expanding market than to increase market share in a slowly expanding one, multinationals see China as their number one target market.
The same applies in trade. Although it will still take a few years for China to overtake the US in total imports, the annual dollar increase in China's imports is already larger than the US and the gap will increase - in 2011 US goods imports rose by US$324 billion while China's increased by US$350 billion.
In short, by every measure, China's market is more dynamic than the US.
Tap into China
Faced with this situation, the logical economic way forward for the US, in attempting to grow more rapidly, would be to tap into the dynamism of China's market. The beneficial effects of such a strategy can be seen not only in Asia, where China is most economies' largest export market, but also in Germany - the world's second largest goods exporter. Germany now exports more to China than the US. This year China will overtake France as Germany's largest overall trade partner. The US, which has even more advanced industrial sectors than Germany, could achieve similarly spectacular export expansion to China - particularly if it would lift politically motivated export restrictions.
The potential for the US export expansion to China was already shown in the US Treasury's report on trade immediately following the 2008 financial crisis - when it noted that by the second half of 2009, US exports to China had increased by 15 percent annually, while US exports to the rest of the world fell by 13 percent. Since then this dynamic has increased further. Between 2007, the last year before the financial crisis, and 2011, US overall exports increased by 29 percent. But US exports to China increased by 65 percent, or US$40 billion. For comparison, US exports to the European Union as a whole increased by 10 percent, or US$24 billion, and US exports to Japan increased by 8 percent - US$5 billion.
In short, the US should be addressing China as its most important potential export growth market. In the last period, in a clear attempt to promote good relations with the US, China has made clear that it is promoting imports from the US --- with considerable results, as the figures show.
Expensive sport
But instead of addressing these economic openings, unfortunately many US politicians are engaging in populist political "China bashing." This is led by Mitt Romney, leading candidate for the Republican presidential nomination.
Daniel Wagner, CEO of Country Risk Solutions, put it recently on the Huffington Post: "China-Bashing Is a Tiresome Sport in American Politics." But, given the figures above, it is a "sport" which is likely to be very expensive for the US economy, and in particular its companies, if it leads to a deterioration of relations with China.
Why should China continue to take special measures to encourage imports from the US if the latter is intent on raising tensions with it? Even if China's government doesn't take any action, Chinese companies are perfectly capable of assessing risk and will conclude relations with US companies play a role.
"China bashing" is likely to end up economically as a case of drawing out a revolver - and shooting oneself in the foot.
John Ross is currently visiting professor at Antai College of Economics and Management, Shanghai Jiao Tong University. He was consultant to Fortune Global 500 companies and from 2000 to 2008 London's director for economic and business policy.
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