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John Frisbie’s Seminar on Economics and Trade:

The US Has Received a Square Deal on US-China Trade

John Frisbie is President of the US-China China Business Council. He has more than twenty years of experience in China, first working for the US-China Business Council, and then for General Electric as a negotiator, before returning to the US-China Business Council to serve as its President. The Council is a non-partisan, non-profit organization that represents the interests of more than 250 US businesses in China.

Mr. Frisbie began his discussion by clearly stating that “the US has received a square trade deal with China.” He declared that he was not a “Sinophile” or a “panda hugger” but one who has lived “in the belly of the beast.” He explained that during his tenure as a negotiator for GE, he experienced numerous obstacles that have largely disappeared today thanks to bilateral efforts on the World Trade Organization agreement as well as some of China’s own deregulation. The great “someday,” about which foreign businesses used to dream, is no longer a futuristic term but a reality. Today, it is possible for foreign businesses to make a profit in China.

He gave the following arguments as to why devaluating the Yuan will not solve the US’s trade problems or benefit its trade status with China:

1. China has continually increased its imports of US goods relative to other nations. In fact, over the past five year, imports have increased roughly by 114%, such that total Chinese trade is just behind Canada, Mexico, and then Japan, with analysts expecting Chinese trade to surpass Japanese trade by the end of the year.

2. The greatest increases in the US trade deficit did not come from the Asian region, but from Canada/Mexico at 100 billion and the European Union at 90 billion. This is an indication that the US trade deficit is not a China specific problem but a more systemic problem.

3. The Chinese budget surplus lies at around 3%. Thus, while the nation may have a large trade surplus with the US, it has deficits with most of its neighbors. A slight budget surplus does not indicate that the nation’s currency is wildly over or under appreciated, as current advocates of a revaluation attest.

4. Reevaluation would not have a major affect on US jobs. The manufacturing industry has been in decline for the past three decades, before China even arrived on the world’s manufacturing scene. In addition, the US manufacturing sectors is not benefiting from recent tariffs on Chinese textile imports, but instead other developing nations such as Mexico and Bangladesh are stabilizing their industries.

5. US government pressure increases speculation on the yuan, such that in the event of a appreciation, subsequent capital flight could lead to a rapid depreciation of the currency, destabilizing trade, and hiking inflation rates in both the US and China.

6. A national currency is a sovereign issue for China. Even if the nation is run as an autocracy, the leaders still have to maintain general support among their citizenry. Bowing to foreign pressure to appreciate the Yuan would run counter to Chinese nationalism.

7. The Chinese economy, particularly the banking system, is still in a pre-modern stage. The banking system still has to sort through its non-performing loan crisis. Only after it has stabilized could it begin to handle the modern practices associated with a floating currency.

Mr. Frisbie also outlined the primary obstacles to US-China trade, those being Intellectual Property Rights and Market Access issues.

Intellectual property right issues remain a major thorn in trade, but new progress and new setbacks have occurred. Most importantly, the Chinese economy has advanced to the point that China is realizing the need for intellectual property rights to protect its own industries. Problematically, however, by this point, the nation’s counterfeit goods have spread beyond Chinese borders to other nations. China is the number one source for a all counterfeit goods which are captured when being shipped into the US.

Market access issues include snags with China’s meeting its own WTO obligations, product standards, custom classifications, and distribution rights. Mr. Frisbie was careful to note that in this area, however, there has been major success over the past half decade.

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