U.S. Must Prove Mettle in the World Trade Game

Global business is thriving. General Motors and Shanghai Automotive Industry are about to formally announce a $1-billion contract to build automobiles in a joint venture in China.

Word spread last week that GM had won the contract by investing $40 million in Chinese technology institutes and agreeing to pass on auto-making know-how.

That was a smart move, possibly securing GM a long-term role in China’s vast, future auto market--if the Clinton Administration doesn’t queer the deal.

The Clinton White House has been waffling lately on trade with China. It released word recently that it will investigate whether Boeing’s subcontracting work to China undermines the U.S. aerospace industry.

No, it doesn’t, is the answer. Boeing has sold $9.2 billion worth of planes to China over the years, while buying $700 million in parts.

Also, the White House a week ago effectively nixed U.S. companies bidding for work on China’s massive Three Gorges hydroelectric project. It was a blow to Caterpillar and other U.S. firms, but a gift to their competitors: Japanese industry, led by Hitachi, Toshiba, Mitsubishi Electric and Mitsubishi Heavy Industries, has said it will help China construct the $18-billion complex of dams on the Yangtze River.

To be sure, the Three Gorges project is controversial on environmental grounds even inside China. And congressional grandstanding as much as White House incompetence is responsible for some weird U.S. stands on trade.

But that only underlines the problem, which is a lack of recognition of just how globally interdependent--and successful--the U.S. economy already is.

Americans are still arguing about the North American Free Trade Agreement two years after its signing. But even with the troubles that opening has brought to Mexico’s poor economy, U.S. exports to Mexico are higher than before NAFTA and will increase as the economy to the south modernizes.

Increased contact is today’s pattern. Chile wants to join NAFTA. Argentina is eager for a Western Hemisphere free-trade area and there is even talk of a transatlantic common market breaking down barriers between Europe and the United States.

Is this a threat to U.S. living standards? No, a boon.

Look at some real statistics: Right now more than 25% of the U.S. economy involves international trade, when exports and imports of good and services are counted.

“By the end of the decade, 30% of the U.S. economy will be accountable to international trade and 16 million jobs will result directly from exports,” says Jeffrey E. Garten, dean of the Yale University School of Management and until recently U.S. under secretary of commerce. Even that understates the reality, says Jonathan Aronson, director of USC’s School of International Relations.

International telephone traffic has increased a thousand-fold in the last three decades, reports TeleGeography Inc., a Washington-based research firm. And U.S. telecommunications carriers bill 7 out of every 10 minutes on the tens of millions of calls to and from the United States.

That’s a payoff for the break-up of AT&T; and overseas investments by U.S. telephone companies.

Money flows in all directions. Last week Siemens of Germany and Motorola announced plans to make advanced memory chips in the United States, working on technology developed by Siemens, IBM and Toshiba.

Most important for the future is access to the large developing economies of China, India, Brazil, Mexico and others. Within 15 years the big developing countries will mean as much to the U.S. economy as Europe and Japan do now.

And that makes Washington’s attitudes about China particularly strange. China is being seen as a competitor, out to “steal” U.S. technology and displace U.S. industries.

But where’s the perspective? China’s developing economy will total roughly $703 billion this year--less than that of California.

Development is decidedly uneven with coastal provinces booming and the vast interior struggling, which is why China wants to build the Three Gorges dam. The project will submerge historic temples and force people to move, but, say Chinese economists, the dams could make fertile an enormous territory, as America’s Tennessee Valley Authority did in the 1930s.

In any event, China will push forward with or without participation by U.S. business, says Frankie F.L. Leung, a Los Angeles attorney and expert on China. French power plant and engineering firms got another $2-billion contract in China last week, a follow up to a French project two years ago.

Similarly, China wants to make automobiles and small, 100-seat aircraft. GM and Boeing would like to participate in those efforts, helping the customer in order to help their own business.

But if the White House discourages U.S. companies, China will turn to Airbus Industrie for aircraft and Toyota, Nissan, Mercedes and others for help with cars.

China will develop over several decades and as it does opportunities will increase for foreign suppliers of cars, planes, engineering and financial services, computers and consumer goods.

U.S. policy should be forthright in demanding that China be open to U.S. companies and exports, that it not become another mercantilist Japan. But talk of a competitive threat is ludicrous. Japan, though far more advanced than China, has never been able to develop its own aerospace industry.

On non-business questions, “China will be assertive,” says Professor Richard Baum, a China scholar at UCLA. So “the U.S. needs to be smart and firm about its interests.”

But it shouldn’t think it can influence China by bluster or boycott. If there are human rights abuses, call Beijing on them as the U.S. would any nation; if there are environmental disputes, recognize there’s not a lot the United States can do beyond general persuasion.

It will certainly accomplish nothing by trying to keep its companies home. For the time is past when they could stay home. Boeing, for example, has sold about the same number of planes internationally as domestically over the last 35 years. But from now on, with almost all growth abroad, 66% to 76% of Boeing’s aircraft sales will be outside the U.S.

Those are the markets that will make jobs for aircraft workers in Seattle--and for U.S. farmers and computer makers and so on. Indeed, one reason the stock market has been strong in the last decade is investor recognition that U.S. companies now do business on a larger playing field.

Like it or not, U.S. prosperity now relies on the global economy--so we may as well like it and learn more about it.