- 01 January 2005 -
China Trade Imbalance Hits Home
by Greg Valero, g.valero@elsevier.com

There is probably no topic in the metal finishing industry that incites more emotion or distress than the challenge presented by the U.S. trade balance (or imbalance). Job and captive shops are watching customers head to China with mounting concern abut the lack of response from the U.S. government. At issue are U.S. trade agreements that arguably have led to a dramatic increase in Chinese imports and the loss of U.S. manufacturing jobs.

The National Association of Manufacturers reports that in the past 20 years, U.S. imports from China grew 20 percent annually while U.S. exports to China rose 12 percent a year. This created a $103-billion trade deficit with China in 2002, up $50 billion from 1996.

The situation has really hit home. U.S. captive and job shops are having a tough time getting new work because so many jobs are going to China, where manufacturing and raw material costs are significantly lower. Metal finishers are, among other things, forced to cut costs by 20 to 30 percent, or more, just to stay competitive with pricing from foreign counterparts. The manipulation of China’s currency—undervalued by an estimated 15 to 40 percent—is also hindering competitiveness.

The China economy is growing by about eight percent annually, experts say, with about three quarters of that growth fueled by exports. But China’s reliance on its export business is creating problems rather than opportunities for U.S. industry. For instance, materials representing an estimated two-thirds of U.S. exports to China are used to produce goods that are imported to this country.

Most observers call for policy changes that will help the industry remain viable in an increasingly competitive global market. Trade associations, for the most part, recommend continuous and aggressive negotiations to promote free and fair trade worldwide and ensure that U.S. trading partners, including China, live up to their obligations under the World Trade Organization (WTO). They urge the Bush administration to enforce policies under the WTO to correct the manipulation, as well as under-valuation, of China’s currency; enforce China’s commitments to the WTO on such issues as subsidies, intellectual property rights, and market access; and enact legislation that renews and grows the U.S. manufacturing base.

In recent years, China has become Asia’s primary manufacturing center and the top nation for foreign investment. But this situation is a double-edged sword: The opportunity is the potential market for products while the threat is an underdeveloped structure making a global manufacturing base.

The multimillion-dollar question is how can metal finishers maintain a healthy manufacturing base when current U.S. trade policy appears to stack the deck against domestic companies? Industry members concur that lobbying efforts must continue to make U.S. government officials more aware of the challenges facing industries such as metal finishing.