Formerly known as Hybrid Fuel Systems, U.S. Energy Initiatives has created a technology that allows diesel engines to be converted to burn both natural gas and diesel fuel. An engine that undergoes this conversion will burn about 80 percent less diesel. With this technology, U.S. Energy has done a brave thing: It has purchased a patent in China.
Doing business with China is a good strategy, and the ruckus being made by politicians regarding trade with China is ill-founded. In fact, China is a booming market. GE Energy, Daimler Chrysler, Ford, Flextronics, Microsoft and a wide variety of other companies have deals with Chinese businesses worth billions of dollars. What these companies realize is the perceived threats of trade with China aren’t unduly threatening.
The three most notable hurdles to doing business in China are the lack of intellectual property (IP) enforcement, the perceived undervaluing of the Chinese yuan currency and brash reactions to trade with China from politicians. Contrary to popular belief, the biggest problem of these three is the lack of IP enforcement.
The IP problem is being worked on. The Chinese media has reported that 2,119 suspects of intellectual property violations were arrested in 2005. This is a 56 percent increase over 2004. “Ironically, it is China that is most affected by violations of intellectual property rights,” Secretary of Commerce Carlos Gutierrez said in response to concerns regarding the issue.
Gutierrez noted the fact that lax IP laws and enforcement can inhibit Chinese businesses from operating on a global scale. In other words, as more Chinese work for and own companies that must compete globally, intellectual property will become more compelling for the Chinese themselves. $200 billion in profits from the United States every year provide 200 billion motives for the Chinese to do business according to IP law.
Of less importance – but more publicity – is the perceived undervaluing of the yuan. It has been said that the yuan is undervalued by as much as a third and the Chinese are intentionally manipulating their currency.
Since China is profiting off the United States to the tune of $200 billion a year, some American politicians defensively accuse China of cheating. Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., have even proposed a bill to impose a 27.5 percent tariff on Chinese imports to the United States. The bill has been quite deservedly shelved.
In fact, the International Monetary Fund and many economists have found that the undervaluing of the yuan is not a third, but more accurately 10-15 percent. Even this small percentage is self-correcting, since the yuan is rising 4.5 times as fast as it was in the second half of last year. This is not manipulation by the Chinese. If it were, the Chinese would be making far more than the rapidly diminishing 10-15 percent for their malfeasance. Even if the Chinese were manipulating their currency, this 10-15 percent shortfall does not explain the $200 billion deficit with China.
This deficit, while alarming to some, is self-correcting. According to Editor in Chief Jim Trippon of China Stock Digest, “American exports to China have been growing at a rate that is seven times faster than U.S. exports to the rest of the world.” The fact is that those “Made in China” stickers that so often spark the ire of Americans only mean that the product in question was assembled in a Chinese assembly plant. Many of these plants are owned by multinational American corporations. Since the components that undergo assembly in China are often imported from other parts of Asia, the Sino-American trade deficit reflects a diminution of trade deficits with other Asian nations.
Politicians profit by condemning trade with China. They garner support by seeming pro-American, and their actions, harmful as they are, make it seem like they are doing something about the $200 billion trade deficit. Politicians also profit from condemning China by distancing themselves from President George W. Bush, who is increasingly unpopular even among members of his own party. It is not a coincidence that these attacks are bipartisan and are being issued less than a week before China’s President Hu Jintao is scheduled to meet with President Bush.
Of course, none of these facades for publicity reflect the actual economic circumstances of trade with China.
The benefits of Sino-American trade are numerous. Most assembly plants in China are found in urban areas. It’s not surprising to find that urban dwellers in China make an estimated three times more than their rural counterparts, largely farmers who cannot own land, by law. When the assembled goods are shipped to America, they provide affordable products that are needed by many in the United States, especially the poor. This influx of price-attractive goods also contributes to lowering American inflation rates.
The government should keep its nose out of the free market. If politicians realized that prioritizing partisan politics over profit leads only to devastating failure, they might find that America’s trade relationship with China is a resounding success.
Jordan Capobianco is a senior majoring in English literature.