- 1. U.S.-China Economic & SecurityReview Commission
Commissioner George Becker Commissioner Michael Wessel Presentation
to the AFL-CIO Las Vegas, Nevada March, 2005
2. Commission Mandate
- Established as part of Congressional PNTR deal.
- Monitors both economic and national security dimensions of
US-China relationship.
- Defines national security as covering economic security as
well.
- Reports annually to Congress (Unclassified and
Classified).
3. Recent Commission Activities
- Since Jan 2004, held 11 public hearings in DC and around the
country.
- Heard from senators, congressmen, business leaders, labor
leaders, state & local government officials, academics and
other experts, public at large.
- Economic hearings focused on Chinas:
-
- Impact on the US manufacturing base
-
- Presence in global capital markets
-
- Impact on jobs and standard-of-living
- Released 2004 bi-partisan annual report.
4. Commissioned Research
- McMillion Study:Trade flows highlighting deficit in Advanced
Technology Product (ATP)
- Bronfenbrenner & Luce Study: Accelerating outsourcing and
offshoring of jobs to China, India
-
- 406,000 jobs shifted out of US in 2004
-
- Companies moving production offshore tend to be large, publicly
held, highly profitable and well established
- EPI Study:1.5 million jobs lost to China deficit since
1989losses accelerating dramatically since PNTR
-
- EPI estimates that each $1 billion in trade deficits equals
12,400 jobs lost
5. Key Commission Policy Findings
- The U.S.-China relationship has been mismanaged and as
currently structured is doing short- and long-term damage to the
US. Economy.
- Our relationship with China is of such scale that the course
and character of globalization will be substantially influenced by
how we manage it.
6.
- 2004 overall goods trade deficit:$666.2 billion( 21.7% )
- Deficit with China:$162 billion( 30.9% )
- Overall ATP deficit:$37 billion( 38.1% )
- ATP deficit with China:$36.3 billion( 72% )
- Trade accounted for a huge drag on fourth-quarter growth,
subtracting $49 billion, or 1.7 percentage points from GDP growth.
Business Week, January 28, 2005
Major Trade Developments in 2004 7. 2004 U.S. Trade Balance by
Region Not Seasonally Adjusted Deficits with every region; China
the largest Balance ($ billions) % of Total Total(census basis) -
$666.2 100.0% North America - $110.8 16.6% Canada -$65.8 9.9%
Mexico -$45.1 6.8% Western Europe - $114.1 17.1% Euro area -$82.9
12.4 % Pacific Rim - $282.5 42.4% Japan -$75.2 11.3% China -$162
24.3% OPEC -$71.9 10.8% Rest of the World -$86.9 13.0% 8.
Import-Export Ratios: China is our most lopsided major
manufacturing trade relationship Country 2001 2002 2003 2004
(Jan-Nov) China 5.32 5.66 5.36 5.67 Canada 1.33 1.30 1.32 1.35
Mexico 1.29 1.38 1.42 1.41 EU-15 1.38 1.57 1.63 1.62 Japan 2.20
2.20 2.27 2.38 9. 10. 11. Exchange Rates (FX per $) Other Countries
Have Adjusted; China Has NOT Jan. 2, 2002 Feb. 17, 2005 % Change
Euro 1.11 0.77 30.6% Japanese yen 132.02 102.59 20% Canadian dollar
1.60 1.23 23.1% Chinese yuan 8.28 8.28 0.0% 12. China Trade Deficit
Factors
- Under-valuation (15-40%) of Chinas currency
-
- As much as 40% tax on our exports to China
-
- 40% subsidy to their products coming here
- Unfair Chinese competition
-
- Failure to implement WTO obligations
-
- Creation of new trade barriers
-
- Subsidized credit hundreds of billions of dollars of
non-performing loans
-
- Dual pricing of energy, other subsidies
-
- Intellectual property rights violations
-
- Offsets, targeting of investment
- Domestic consumption spending boom
- Corporate America requiring pricing to theChina Price
- Roughly 55% of U.S. imports from China come from foreign
multinational firms operating in China
13. "The China Price" Even manufacturers that have weathered
past import waves are being swamped by China's combo of low prices
and high tech 14. Steel
- Chinas dramatic growth is driving up the price of inputs.
- China is adding capacity year-after-year has plans to become a
net exporter of steel and independent of imports by 2010.
- Traditional steel exports to China will be forced to find other
markets.
15. Autos and Auto Parts
- Defined as a backbone industry by China.
- Plans to become worlds largest auto producer in 5 years.
- Plans to export $100 billion in auto products by 2010.
- Plans to produce 6 million carsup 20% from last year (will pass
Germany as worlds 3rd largest auto producer).
- By 2007, capacity is expected to exceed demand by roughly 3
million cars a year the equivalent of 15-20 average-sized auto
plants.
- U.S. companies are investing billions in China.
-
- Delphi has invested $500 million, with 14 facilities and will
soon open a research center with the most advanced technology
- Big Three teaching Chinese companies how to become world class
producersfacing copy-cat production.
- Average auto worker in Shanghai makes roughly $1.50 an hour in
wages and benefits only about 5% of what a U.S. auto worker
makes.
- Unlike Japan in the 1980s a good portion of the production in
China is being done through joint ventures of the Big Three they
can ultimately send their product back here through their own
distributors (Japan had to invest huge sums in dealerships and
franchises to sell their products here).
16. Aerospace
- China has targeted the sector for development wants to produce
regional and large civil aircraft.Expanding its space program.
- China has been playing Airbus against Boeing seeking to take as
much offset production work for itself as possible.
- Surplus in large aircraft sales trade surplus continues to
decline 25% reduction from 2003 which was 30% down from the year
before.
- China is becoming a major world class producer of aircraft
parts and components.
- China exported 2 domestically-made regional airplanes and has
signed export contracts for 20 more.
17. Communications
- In less than 10 years, U.S. global trade surplus in cell phones
has turned into a $16.3 billion trade deficit.
- China has gone from trade balance in cell phones to world
leader surpassing Korea as the leading exporter to the U.S.
- China is becoming a major design center.In 2002 only 10% of
handsets made in China were designed in house expected to rise to
40% by 2008.
- China is beginning to drive product standards produce to their
standards.
- Microsoft, IBM, Honeywell and 3com are among the long list of
US companies doing work in China.IBM openly discussed how its going
to force its U.S. based employees to train their foreign
replacements in China.
18. Textiles and Apparel
- China now has quota free access to the US market (as well as
that of other WTO members).
- Chinas textile and apparel sector is stealing market share at a
rapid and accelerating pace.
- Bush Administration was slow to use textile safeguardtaking 17
months to write the regulations.
- US Court of International Trade has blocked threat-based cases
a critical safeguard that was negotiated in Chinas WTO accession
agreement.
- Administration doesnt collect some information critical to
enforce our rights under the agreement.
19. Intellectual Property Rights (IPR)
- Chinas piracy of our IPR exceeds 90% by industry estimates and
is getting worse every year.
- Tens of billions of dollars of profits are lost and with them
jobs and our standard of living.
- Piracy and counterfeiting extend well beyond software, movies
and music to industrial products.
- China has signed 4 separate IPR agreements when they fail to
live up to their promises, the Administration simply accepts new
promises and signs a new agreement.
- Bush Administration claims there arent enough facts to bring a
case.
20. Wal-Marts A Big Factor
- In 2004, Wal-Mart imported more than $18 billion from China
more than 10% of US trade deficit with China is now attributable to
Wal-Mart.
- If Wal-Mart were a country, it would rank as Chinas 8 th
-biggest trading partner putting it ahead of Russia, Australia and
Canada.
- Wal-Mart is defining producers prices, driving production
offshore and driving down wages here at home.
- Wal-Mart is reviewing plans to buy its own shipping terminals
and container ships.
21. China Is Beginning to Buy American
- Lenovo connected to State Owned Company wants to purchase PC
division of IBM.US Government investigating national security
risks.
- China purchase of Magnequench approved by US producer of rare
earth magnets used in guidance systems in smart bombs.
- Last year, China purchased more than 20 U.S. companies.
- China foreign exchange reserves have skyrocketed since 2000
rising from $165.5 billion to $610 billion at the end of 2004.These
reserves may be used to engage in a buying spree of US assets or to
influence U.S. policy.
22. Chinas Energy Needs Are Growing Dramatically
- Forty percent of new world oil demand is because of China.
- Unlike the US and most developed countries, China wants to own
their resources directly.
- There is a direct link between their energy sources and their
proliferation activities Iran, Sudan, etc.
- Chinas energy companies are discussing buying 49% of a Canadian
pipeline.China may buy 1 million barrels a day of Canadian oil out
of 3 million bbd production.
- Chinese state-owned energy company rumored to be interested in
buying Unocal 9 thlargest US energy company.
23. China Is Resource Hungry in Other Areas
- Top export category from the Port of Seattle to China is scrap
materials:Waste paper, scrap steel and timber.
- China bought iron ore mine in Minnesota.
- China trying to buy Canadian firm Noranda primary metals
producer with operations in 38 countries.
- China refuses to export commodities like coking coal in
violation of WTO rules.
24. Communist Chinas Continuing Human Rights Abuses
-
- The Government's human rights record remained poor, and the
Government continued to commit numerous and serious abuses.
-
- Abuses included instances of extrajudicial killings, torture
and mistreatment of prisoners, forced confessions, arbitrary arrest
and detention, lengthy incommunicado detention, and denial of due
process.
-
- The judiciary was not independent, and the lack of due process
remained a serious problem. Government pressure made it difficult
for Chinese lawyers to represent criminal defendants. A number of
attorneys were detained for representing their clients
actively.
2003 Bush State Department Annual Human Rights Report: 25.
-
- Over 250,000 persons were serving sentences, not subject to
judicial review, in reeducation-through-labor camps.
-
- The Government severely restricted freedom of assembly and
association and infringed on individuals' rights to privacy.
-
- Every year since PNTR, Chinas record has gotten worse.
Communist Chinas Continuing Human Rights Abuses 2003 Bush State
Department Annual Human Rights Report: 26. China Continues to
Threaten Taiwan
- More than 650 missiles aimed across the Taiwan Straits.
- Chinese navy continues to build within 5 years will have more
than 20 modern attack submarines, including 6 nuclear-powered.
- US and Japan signed joint agreement in February 2005 that
Taiwan is a mutual security concern and that security in the Taiwan
Strait is a common strategic objective.
27. China Is a Serial Proliferator
- In December 2005, 8 Chinese companies are sanctioned for
selling missile technology to Iran.
-
- Significant other sanctions have been imposed in the past, many
of which are still in effect.
- China provides arms and support to Sudanese interests to
protect their energy interests.
- Chinese assistance to Pakistan was essential to the development
of their missile and nuclear programs.
- China has provided assistance to North Koreas missile program,
its space program and possibly its nuclear program either directly
or indirectly through Pakistan.
28. Perspective
- China is a communist nation.
- Their people do not elect their leaders.
- Raw use of power to maintain control.
- China has a clear plan for economic developmentabout to draft
its 11 thFive Year Plan.
- China is acting in its national interest we should be acting in
ours.
29. US-China Relationship is Different
- EU-15 with 90 million more people, ran an annualized trade
deficit with China last year of roughly $100 billion.EU-15 had an
annualized trade surplus with the U.S. in 2004 of about $90
billion.
- China had a trade surplus with the world of only $25.3 billion
in 2003.While it has surpluses with the US, EU and Japan, it has
deficits with most other countries.
30. What Can We Do? 31. Policy Recommendations Trade Laws
- Make labor standards a core goal of US trade policy.
- Instruct USTR to report on Chinas system of subsidies,
discriminatory taxes, and market access denial.
- Protect our trade laws which the USTR has agreed to discuss in
the Doha Round.
- Fund strengthened trade enforcement; bring actions in WTO.
- Act on ITC Section 421 case decisions.
- Help small & medium-sized companies bring trade cases.
- Restore budget on China trade enforcement which Bush eliminates
for 2006.
32.
- Strengthen 1988 Trade Act requiring Treasury Dept. to report on
currency manipulation & take action.
- Take action against Chinese currency manipulation via IMF, WTO,
and 301 case.
- Pressure other East Asian countries to cease currency
manipulation.
Policy Recommendations Currency Manipulation 33. Policy
Recommendations Intellectual Property Rights
- IPR is an issue for all sectors of our economy.
- Force Administration to take action billions of dollars and
hundreds of thousands of jobs are being lost every year .
- Have Congress initiate 301 action on IPR.
34. Making Policy Happen
- Link national security and economic security together.
- Educate people on threat China poses.
- Talk about leverage 30% of Chinas exports come to the U.S.,
only 4% of ours go there (with many only being industrial
tourists).Theyve got more to lose.We dont have to accept thestatus
quo .
- Were not using the tools we have (IMF, WTO, Section 421).
- We also need more tools (labor standards, non-performing loans,
etc.).
- We need to activate the grass roots about the threat China
poses.The election might be over, but the problem isnt solved.
35. Commissions Future Activities
- Hearings that spotlight the administrations policies &
actions.
- Research & hearings on the effects of Chinas policies on US
employment & investment.
- Research & hearings on future of the defense industrial
base.
- Elevate the debate on globalization & outsourcing. What
does it mean for US workers when 2.5 billion people join the global
labor market?
36. 37. 38. 39. We Need To Learn How To Communicate Better There
is a real threat! 40. We Need Your help
- We need your union to provide us with information on what jobs
are being sent to China.
- We need to know what products are important to our national
security, homeland security that your unions are involved in which
are being offshored.
- We need your input on how we can best help you in framing the
issues.
- AFL-CIO and the affiliated unions are the most powerful
lobbying force in the U.S. representing 13 million union households
now is the time for action.