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US-China Trade in Perspective:
Asia's Emerging Union and
Implications for the United States
The China Business Forum
THE EDUCATIONAL AND RESEARCH ARM OF
THE US-CHINA BUSINESS COUNCIL June 2005
EXECUTIVE SUMMARY
s Asian integration, based on the opening of China and other geopolitical
changes, is creating a fundamentally and genuinely more competitive Asian
economy, as capital from more-advanced regional partners is combining with
China's large, low-cost environment.
s This is evident in major shifts in Asian investment and trade. China is quick-
ly becoming the largest export market for other Asian nations. Since the turn
of the new century, Asian investors have been opening 20,000 manufacturing
facilities a year in China, representing a huge shift of regional manufacturing
capacity. China is becoming the main market for most Asian economies.
s China is also going through a period of extraordinarily rapid trade growth,
both as an exporter and as an importer. In 2004, China's trade growth, com-
bining imports and exports, reached 35 percent. Between 1999 and 2004, US
imports from China grew from $82 billion to just under $200 billion, account-
ing for a quarter of all America's import growth.
s On the other hand, US exports to China nearly tripled in the five years after
1999, far exceeding forecasts prior to China's World Trade Organization entry.
America's exports to China have risen about 10 times as fast as exports to the
world during that time, but are still far below China's exports to the United
States.
s In this context, a series of US-China trade and macroeconomic disputes
have emerged, leading to new stresses in US-China trade relations and exacer-
bating some existing points of friction. These need attention in their own
right, but also must be viewed in the context of the larger transformation of
the Asian economy.
s US imports from Asia (including China) since 1992 have grown at roughly
the same pace as imports from Europe, Canada, and Mexico. Asia's share of
the US total trade deficit has actually declined significantly during this time
(though growing in absolute terms) as our trade deficit with the rest of the
world has risen dramatically.
s The United States needs to improve its competitiveness and productivity in
response to the challenge of Asian integration. Priorities should include restor-
ing control over government finances and raising national savings; adopting
new measures to open markets and enforce trade agreements; strengthening
government commitments to basic science; ensuring that education reforms,
worker training, and visa policies allow American businesses and universities to
attract international talent; and seeking continued improvements to high-tech
and traditional infrastructure.
© 2005 The China Business Forum
US-China Trade in Perspective:
Asia's Emerging Union and Implications
for the United States
by Edward Gresser
I
t has been three decades since ing, assembly, research, and other
President Nixon renewed US rela- work to the mainland. This trend has
tions with the People's Republic made Asia generally much more
of China. Each of the six US presi- competitive in a short period of time,
dents since that time has supported accelerated China's export growth,
the development of Sino-American and shifted exports from smaller
trade--sometimes in the face of con- Asian economies away from the
siderable controversy, as trade policy United States and toward China.
became a vehicle for debate on Meanwhile, American trade and cur-
strategic relations, Taiwan policy, rent account deficits and Chinese
human rights, arms transfers, and trade and current account surpluses
other issues. Each of these adminis- have escalated, along with a series of
trations has encouraged China to bilateral disputes over trade and
join global economic institutions, macroeconomic policy.
open its markets, and integrate itself The result has been to revive con-
into Pacific and world trade. To troversy in US-China trade relations.
many observers, the end of the annu- Early this year, the US Senate voted
al debate over the renewal of China's to consider a 27.5 percent tariff on
Most Favored Nation trade status all Chinese-made goods, unless the
with the approval of permanent Chinese government were to revalue
Normal Trade Relations for China in the renminbi (RMB) by some roughly
2000, followed a year later by China's equivalent percentage. More specific
accession to the World Trade complaints about Chinese trade poli-
Organization (WTO), marked a tran- cy range over many different fields:
sition point. But by 2004, US trade
policy toward China had already s Trade Balances and Currency Matters:
begun to face new pressures. As America's global trade imbal-
In the intervening years, domestic ance has grown, from over $400
reform, geopolitical change, and billion in 2000 to well over $600
market-opening through China's billion in 2004, the imbalance
WTO accession had combined to with China has risen above $160
reshape Pacific trade patterns. Flows billion. Beijing's currency policy
of investment capital from Japan, has become central to the
South Korea, Taiwan, Hong Kong, American discussion of this issue,
and Singapore into China have with the fixed rate of the RMB
grown to massive scales, as all these often cited as the main cause of
economies continue to shift process- the growth of the bilateral deficit.
About the Author
Edward Gresser is director of the Project on Trade and Global Markets at the Progressive
Policy Institute. This paper represents the personal views of the author and does not necessari-
ly reflect positions of the Progressive Policy Institute.
1
s Textiles: In the months following In this context, actions to resolve
the abolition of global textile trade disputes and address macro-
quotas on January 1, 2005, the economic imbalances remain impor-
Bush administration "self-initiat- tant on their own merits, but are
ed" an investigation of Chinese unlikely to eliminate the pressures
clothing imports and imposed a on American businesses. In some
new set of quotas on Chinese- cases these pressures might become
made clothes. still more intense. The United
s Labor: The AFL-CIO in 2004 filed States, therefore, needs to find ways
two Section 301 cases against to ensure that its workers and com-
China (both of which the Bush panies "raise their game," both
administration turned down), through efficiencies in the private
arguing that workplace abuses sector and through government
and in particular the absence of commitments to basic research,
free unions has grossly inflated infrastructure, and education
Chinese exports and extinguished reform, to compete more effectively
727,000 American jobs. in the years ahead.
s Intellectual Property: US firms, along
with other international compa- I. THE US-CHINA TRADE
nies, point to pervasive and RELATIONSHIP
unpunished intellectual property
violations in China, affecting Shifts in intra-Asian trade and
products that range from movies investment usually get little attention
to medicines and even cars. in debates on the US-China trade
s WTO Commitments: The Office of relationship. In the past, this may
the US Trade Representative in have deprived American trade discus-
2004 argued that Chinese imple- sions of some depth, but was not an
mentation of WTO commitments oversight of basic importance. Today,
has "lost momentum." however, these shifts are an essential
element of the US relationship with
The United States is intensely China. One can see this through an
debating the merit of these com- analysis beginning with the perspec-
plaints, and their balance against the tive dominating the US debate--that
advantages of imports from China for of import growth, competitive pres-
American households buying con- sure, and bilateral deficits on one
sumer goods and businesses buying hand, and the less widely publicized
industrial inputs. This paper will not trends in American exports on the
focus on either question, but instead other--and then by stepping back to
will focus on a simultaneous phenom- view both in a wider frame.
enon of structural change in Asia, lit-
tle recognized in the United States, 1. Rising US Imports and a
that intensifies all such debates. Since Rising Trade Deficit
China's entry into the WTO, intra-
Asian trade and investment have The rapid expansion of imports
transformed Asia in some ways into a from China is the most obvious phe-
single large economy comparable in nomenon in US trade since the turn
size to that of the United States or of the new century. Between 1999
Europe, rather than the collective of and 2004, imports from China grew
productive centers it was in the 1980s from $82 billion to just under $200
and 1990s. Thus, Asia as a region is a billion, accounting for a quarter of
far more competitive global player all America's import growth. In
than it was a few years ago, and 2004 alone, US imports from China
American firms find import competi- grew by $45 billion--again a quarter
tion far more stressful. of the total growth in US imports.
2
Chinese-made products now Table 1:
dominate the American consumer US Imports From China, 1999 and 2004
manufacturing market, a reality that
is visible in any department store, Product 1999 2004 % Change
and in the daily lives of American Total (by value) $82 billion $196 billion 139%
families. A closer look into the fig-
ures shows that imports from China Perfume 22,000 kilos 1.99 million kilos 8,945%
also are rapidly beginning to com- Child safety seats
pete with American factories in for autos 134,000 4.6 million 3,332%
industrial products. Toys, shoes, Wooden beds 584,000 3.1 million 431%
clothes, consumer electronics, and Television sets 3.6 million 15.1 million 319%
other light goods remain the top Auto parts $305 million $1.46 billion 379%
Chinese exports, but products like Integrated circuits $470 million $890 million 89%
auto parts, plastics, industrial elec- Shoes 1.26 million pairs 1.8 million pairs 42%
tronics, computer parts, and other Dolls 460 million 395 million -14%
advanced manufacturing products
Bilateral Imbalance $69 billion $162 billion
are growing at faster rates.
Table 1 records import growth by Source: US International Trade Commission.
value overall and by volume for a
few visible types of products, and
also records the growth of the bilat- 2. Rising US Exports and
eral trade imbalance. (All the data Greater Diversification
are reported as recorded by
American statistics; Chinese data Without doubt, the data in Table
are of course different, and neither 1 have helped fuel the debates in
side does a very good job of 2004 and 2005 over trade with
accounting for trade via Hong China. But a different picture
Kong.) As the table shows, "tradi- emerges with a closer look at
tional" exports to the United States American exports. US exports, in
like shoes seem to be growing more fact, have been considerably stronger
slowly than newer exports like child than many of the more optimistic
safety seats, TV sets, perfumes, and forecasts of the 1990s. Before the
auto parts. conclusion of the WTO accession
Evidently, China's exports to the agreements five years ago, for exam-
United States are growing fast and ple, the US International Trade
diversifying quickly into areas that Commission tended to predict that
compete more directly with US exports to China might grow 10
American production than in the percent more rapidly than they
past. American trade statistics also would in the absence of the agree-
show a rapid growth in bilateral ment.1
trade imbalances, with China's This prediction now seems rather
trade surplus doubling every four modest. In the five years after 1999,
years since the early 1990s. China's US exports to China nearly tripled,
bilateral trade surplus rose from rising from $13 billion to $35 billion.
$18 billion in 1992 to $40 billion in China passed Germany as a market
1996, $80 billion in 2000, and just for America's merchandise exports,
over $160 billion in 2004. Stress and came level with the United Kingdom
friction may be the predictable (though inclusion of services exports
results. would keep the UK above China),
1. See, for example, US International Trade Commission Investigation 332-403,
"Assessment of the Economic Effects of China's Entry into the WTO," September
1999, at http://hotdocs.usitc.gov/docs/pubs/332/PUB3229.PDF.
3
Table 2: Department of Commerce figures,
US Exports to China and power generating equipment ($6.2
billion), electrical machinery ($6 bil-
Other Markets, 1999 and 2004 lion), oil seeds ($2.4 billion), and
Country 1999 Exports 2004 Exports % Change optics and medical equipment ($2
billion) were the top US exports to
World $693 billion $817 billion 18%
China in 2004.
Japan $57 billion $54 billion -5%
Table 3 illustrates these trends by
UK $38 billion $36 billion -5%
recording export data for a variety of
China $13 billion $35 billion 169%
manufactured goods, food products,
Germany $27 billion $31 billion 15%
and industrial inputs between 1999
Source: US International Trade Commission. and 2004. Several of these product
categories benefited from tariff cuts,
quota elimination, or revised phy-
and even drew within sight of Japan. tosanitary regulations.
As shown in Table 2, page 4, US An alternative set of set of statis-
exports to China have risen about tics appears in the analysis of US
ten times as fast as US exports to the exports to China by geographic ori-
world at large. gin rather than by product. Here
These aggregate statistics may dis- again the US Department of
guise a faster rate of growth in the Commerce data are remarkable,
exports most affected by implemen- showing very rapid growth in exports
tation, even if imperfect, of China's to China from New England, the
WTO commitments. China's market South, the Rocky Mountain West,
for civil aircraft, for example, has and other regions (see selected states in
been open for some time, with no Table 4).
tariffs and few regulatory barriers. In The US data, therefore, show a
the 1990s, a large fraction of the rapidly growing and diversifying
value of American exports to China bilateral relationship. US imports
reflected airplane deliveries. As from China have risen from a larger
recently as 1999, in fact, planes base and thus have grown faster in
accounted for almost a fifth of US dollar terms, and likely pushed as
exports to China. By 2004, airplane well by currency factors, as the
revenue remained high in absolute research from the Institute for
terms, but had fallen to about 5 per- International Economics and much
cent of the overall value of US political debate suggest. But US
exports to China. According to US exports to China have also grown
very strongly, across a variety of prod-
ucts. Given the rapid growth of
Table 3: exports to China as well as imports
US Exports to China by Product, 1999 and 2004 from China, attributing China's
export success solely to "unfair" trade
Product 1999 Exports 2004 Exports % Change
and currency policies thus seems
Total $13 billion $35 billion 169% inadequate.
Airplanes $2.3 billion $1.9 billion -17%
II. ASIA'S CHANGING TRADE
Oranges $174,000 $13.8 million 7,831%
Lenses, prisms & mirrors $600,000 $63 million 10,400%
PATTERNS
Textile fabrics $80 million $270 million 237%
A different approach altogether
Furs $1 million $37 million 3,600%
begins by analyzing Chinese data, as
Fish & other seafood $86 million $250 million 191%
well as statistics from other Asian
Semiconductor chips $700 million $2.4 billion 243%
nations. The Chinese data, published
Source: US International Trade Commission. Some SITC categories have monthly by the Ministry of
been combined. Commerce, give a fuller picture of
4
Chinese trade growth and of the Table 4:
evolving Chinese relationships with US Exports to China by State, 1999 and 2004
Asian trade partners. Two points in
particular are important to note. State 1999 Exports 2004 Exports % Change
Total $13 billion $35 billion 169%
1. Chinese Trade Growth
Arizona $150 million $650 million 333%
First, China is going through a California $2.4 billion $6.8 billion 183%
period of extraordinarily rapid trade Hawaii $2 million $33 million 1,550%
growth, both as an exporter and as Iowa $37 million $128 million 246%
an importer. In 2004, China's trade Louisiana $660 million $2.2 billion 233%
growth, combining imports and Massachusetts $331 million $875 million 164%
exports, reached 35 percent. China's Michigan $198 million $607 million 207%
total exports jumped from under Montana $1 million $15 million 1,400%
$440 billion to nearly $600 billion, Pennsylvania $275 million $780 million 184%
while its imports rose from $413 bil- South Dakota $2 million $33 million 1,550%
lion to $560 billion. This followed a Texas $900 million $4.5 billion 400%
year of even faster growth in 2003, at Source: US Department of Commerce. Numbers have been rounded.
40 percent import growth and 35
percent export growth. The statistics
for 2005 seem more modest, reflect- very different histories. China is
ing efforts by the Chinese govern- entering the global economy from a
ment to slow economic growth, but position of much greater isolation
China's projected trade growth in than the United States ever experi-
2005 still is likely to outstrip those of enced, and has been liberalizing its
most other major economies. trade and investment policies faster
The unusual scale of this trade in the early years of the twenty-first
growth emerges by comparison with century than the United States,
the American experience. The last Europe, and Japan did in the early
year in which America's trade grew years of the the General Agreement
by 30 percent or more was in 1946. on Tariffs and Trade (GATT) system.
Similar statistics appear in 1866, China also, of course, finds a far
1916, 1919, and 1942. In essence, in more open and easily accessible glob-
the American context 30 percent al economy than American business-
trade growth usually reflects wartime es and workers found as the GATT
emergency measures (e.g., the system developed in the 1950s and
launch of the Lend-Lease program in 1960s. But even more profound
1942), or revivals of trade in the changes are emerging in the trade
aftermath of war. Only once has the patterns of other Asian countries.
United States strung two such years Japan, for example, reports trad-
together--in 1815 and 1816, after ing more with China than with the
the end of Britain's naval blockade of United States last year, and may
the Atlantic and Gulf coasts imposed export more in 2005 to China than to
during the War of 1812. the United States. (This projection
includes Japanese exports to Hong
2. Asia's Changing Trade Kong as well as mainland China.)
Patterns Using the broader definition of
"Greater China," which includes
Obviously one should be careful Taiwan and Hong Kong as well as
with economic comparisons across Macao, Japan actually did export
centuries and among countries with more to China than to the United
2. Analysis based on data from the Japan External Trade Relations Organization.
5
Table 5: Trade patterns have been chang-
Asian Exports, 2000 and 2004 ing all across Asia over the past five
years. China's exports to the United
Country 2000 2004 % Change States have grown; Japan, Southeast
Japan Asia, and South Korea have mean-
to United States $144 billion $131 billion -9% while redirected exports from the
to South Korea $31 billion $46 billion 48% United States to China. In effect, the
to China/Hong Kong $57 billion $113 billion 98% postwar era of Asian development--
Mainland $30 billion $76 billion in which countries and economies
Hong Kong $27 billion $37 billion along an arc from Japan to
Singapore relied directly on the
South Korea United States for export markets,
to United States $38 billion $43 billion 13% employment, and growth--appears
to Japan $20 billion $22 billion 10% to be coming to an end.
to China/Hong Kong $29 billion $68 billion 135%
Mainland $18 billion $50 billion 3. Asian Economic Integration
Hong Kong $11 billion $18 billion
What explains such dramatic
ASEAN
shifts? Here we need to relate trade
to United States $80 billion $85 billion 6%
patterns to investment, and invest-
to Japan $57 billion $57 billion 0%
ment to geopolitics and history.
to China/Hong Kong $37 billion $74 billion 100%
Over the four decades after 1949,
Mainland $16 billion $40 billion*
the Chinese Revolution and the
Hong Kong $21 billion $34 billion*
Korean War effectively separated
Source: Table uses data from IMF, Korea International Trade Association, mainland China from its neighbors.
JETRO, and Southeast Asian statistical agencies. This circumstance is certainly rare in
*ASEAN data for 2004 are unavailable for some member nations, so total Asian history, and may be unprece-
ASEAN exports have been calculated using 2003 data and the 2003-2004
dented. During these four decades,
import growth rate reported by PRC Ministry of Commerce.
Japan, South Korea, Taiwan, Hong
Kong, and Singapore industrialized
and became financial and technolog-
States as early as 2003. Again, for his- ical powers, while China remained
torical context, Japan has not relied an isolated, relatively poor economy.
more heavily on China than the The separation meant powerful
United States as an export market (if and unrealized complementarities
the World War II years are excluded emerged as soon as China began to
as anomalous) since the year 1873.2 re-engage with the outside world.
Similar trends are under way all Mainland China's low costs, large
across Asia. For both South Korea and relatively well-educated work-
and Singapore, mainland China force, and rapidly developing infra-
alone has now passed the United structure were a natural match for
States to become the largest single the capital and technology of its
export market. As shown in Table 5, smaller, wealthier neighbors.
combined exports to China from the During the 1990s, a series of
10 members of the Association of geopolitical and economic events
Southeast Asian Nations (ASEAN)-- removed the barriers between China
again including Hong Kong--already and the rest of Asia. These events
have surpassed exports to Japan, and included the normalization of rela-
seem likely soon to surpass exports to tions between China and South
the United States. It seems likely that Korea in 1992; Taiwan's removal of
China has not been Southeast Asia's limits on mainland investment in the
main export market since the open- mid-1990s; and Hong Kong's rever-
ing of the colonial era early in the sion to Chinese sovereignty in 1997,
nineteenth century. following a long period of Hong
6
Kong-led development of the manu- Table 6:
facturing industry in Guangdong. FDI in China, 2004
The final event, China's WTO acces-
sion in 2001, marked a new step in Total: $60.6 billion
the liberalization--and globaliza- Asia and Tax Havens: $46.6 billion
tion--of the Chinese economy. Hong Kong $19.0 billion
The result is in retrospect obvious, South Korea $6.2 billion
but was not foreseen at the time and Japan $5.5 billion
still is not widely recognized in the Taiwan $3.1 billion
United States. The richer Asian Singapore $2 billion
economies are integrating with a Other ASEAN $0.8 billion
large, low-cost neighbor, and all the Tax havens* $10 billion
parties are becoming more efficient
and competitive global producers as United States $3.9 billion
a result. European Union $3.9 billion
The scale and speed of this inte- Other $6 billion
gration appears perhaps even more Source: PRC Ministry of Commerce.
clearly in investment data than in Numbers may not add up due to rounding.
trade statistics. Each year since 2000, * Usually believed to include Taiwan invest-
China has been the recipient of the ment and "round-trip" investment from the
world's largest or second-largest flows mainland.
of foreign direct investment (FDI).
American debates often seem to "manufacturing facilities" per year.
assume that a very large proportion Such a "facility" may not be the
of FDI in China represents invest- equivalent of a "factory" elsewhere in
ments by American companies. But the world. But the fact that the
while US companies have made sub- United States has a total of 350,000
stantial investments, FDI in China is operating factories suggests that the
above all Asian FDI. addition of 20,000 new facilities in
The PRC figures for 2004 are China each year is probably enough
revealing, as shown in Table 6. China to affect the global manufacturing
received nearly $61 billion in FDI economy.
flows in 2004, second among major Even a fairly cautious analysis of
nations to the United States, with the FDI picture should indicate two
roughly three-quarters of the flow things. First, Asian investment in
coming from its Asian neighbors. China has created a large increase in
American FDI statistics for 2004 global manufacturing capacity.
provide an instructive comparison: Second, it has meant a qualitative
American FDI in China, India, change in the Pacific economy, merg-
Mexico, South America, Africa, and ing the strengths of the smaller and
the Middle East combined for just wealthier Asian economies with the
over $20 billion.3 Even if one dis- complementary strengths of China's
counts inflows from tax havens, Asian economy. In practical terms, though
investment in China was nearly dou- without any formal legal or adminis-
ble total US investment in all devel- trative apparatus, East Asia has
oping countries combined. undergone in five years an integra-
Another perspective comes from tion process that took Europe three
China's Ministry of Commerce, decades to accomplish. In effect,
which has presented the inflows of there is now an informal, private-
Asian capital as responsible for the sector-driven Asian counterpart to
opening of about 20,000 mainland the European Union.
3. Based on US Department of Commerce's Bureau of Economic Analysis figures on
US direct investment overseas, available at http://bea.doc.gov/bea/di/usdiacap.htm.
7
Table 7: base year, in contrast, yields a figure
US Imports From Asia and of 38 percent import growth from
Asia, and 47 percent from the rest of
the World, 1999 and 2004
the world.
Country 1999 2004 % Change Trade deficit figures behave in a
similar way. The US trade imbalance
World $1,017 billion $1,460 billion 44%
with Asian countries has risen consid-
East Asia* $367 billion $503 billion 37%
erably, roughly in lockstep with the
All others: $650 billion $957 billion 47%
overall American trade imbalance.
Africa/Middle East $43 billion $100 billion 133%
But, as Table 8 indicates, the Asian
Other Latin America $56 billion $98 billion 75%
"fraction" of the total American
European Union + $194 billion $270 billion 39%
trade imbalance actually has dimin-
Canada/Mexico $307 billion $410 billion 34%
ished in comparison to the contribu-
Source: US International Trade Commission. tions of other countries.
* Mainland China, Hong Kong, Taiwan, Japan, South Korea, and the 10 Regardless of structural change in
ASEAN members. Asia, some American complaints
+ Data for the 15 EU members prior to 2004; does not include the 10 newest appear well-grounded. There surely
members. is merit in charges of high rates of
intellectual property piracy, for
instance. Independent scholars and
IV. A NEW PERSPECTIVE ON the directors of the International
THE AMERICAN DEBATE Monetary Fund (IMF) have argued
that fixed currency rates in China
1. Imports and Deficits (and other medium-income Asian
Re-Examined states), especially as they are joined
In this context, American views on with high fiscal deficits and low sav-
imports and trade imbalances look ings rates in the United States and
considerably different. When China weak growth in Europe and Japan,
is examined not on its own, but as are contributing to a potentially dan-
part of a larger East Asian region, US gerous inflation of global trade and
imports from Asia are not growing current account imbalances. WTO
faster than imports from other areas; dispute settlement options, IMF-led
they have grown at roughly the same discussions, and bilateral diplomacy
pace as imports from Europe, offer ways to address such issues.
Canada, and Mexico (see Table 7). Former Treasury Secretary Larry
The fastest-growing US imports, in Summers, for example, has suggested
fact, are from oil exporters in Africa, a major coordinated initiative for the
Latin America, and the Middle East. United States, China, other emerging
Measuring growth rates from dif- Asian economies, Japan, and Europe
ferent base years can change these to address the financial issues imbal-
percentages. It does not, though, ances.4
lead to strikingly different results. But as American officials address
Comparing 2004 data against 2003, these issues, they should also remem-
for example, reveals that imports ber that the global economy is
from East Asia grew by 17.2 percent, changing rapidly. The preceding dis-
while US imports from the world at cussion of Asian integration and its
large grew by 16.8 percent. Thus, implications may suggest two points
Asian imports did outpace other for the debate on US-China trade.
imports that year, but not by an First, the stress of competition
unusual extent. Using 2000 as the from manufacturing based in China
4. "The US Current Account Deficit and the Global Economy," Per Jacobsson
Lecture by Hon. Larry Summers, October 2004, available at
http://www.perjacobsson.org/2004/100304.pdf.
8
is real, and the anxieties of American Table 8:
businesses and their workers are like- US Merchandise Trade Deficits, 1992-2004
ly to continue to be potentially divi-
sive issues. This stress reflects the fact 1992 1996 2000 2004
that Asian integration, rather than Global deficit $85 billion $168 billion $436 billion $653 billion
Chinese economic strength alone, is East Asia $92 billion $114 billion $232 billion $305 billion
creating a fundamentally and gen-
uinely more competitive Asian econ- East Asian deficit 108% 68% 53% 47%
omy. American officials debating as percent of total
China trade policy should recognize Source: US International Trade Commission.
this general fact, and seek to inform
the American public about it as they
work on specific trade or macroeco-
nomic disputes.
Second, competitive stress is protect security but also allow
unlikely to vanish--and may not American businesses and universities
even diminish--even if many of the to attract international talent; and
current complaints about Chinese seeking continued improvements to
trade policy are resolved. Barring both high-tech and traditional infra-
some unforeseen financial or security structure in the United States.
upheaval, Asian economic integra- We can remember that the United
tion is permanent, and American States has faced similar economic
businesses and workers will need to challenges in the past. In the 1960s,
adjust by improving their own com- for example, Europe began to
petitiveness and productivity. emerge as a single economy, posing
It is of course easier to advise new questions to the Kennedy
Americans to adapt to change than to administration about the durability
tell them how to do so. In general of the undisputed American econom-
terms, however, scholars agree that a ic leadership of the 1950s. In the
successful competitiveness policy 1980s and 1990s, American business-
ought to include examination of sev- es adapted to new challenges posed
eral different issues. These include by Japanese innovations in heavy
regaining control over America's gov- industry and high-technology manu-
ernment finances and raising national facturing. The issues raised by
savings rates; adopting new measures China's success and Asia's integration
to open overseas markets and enforce today differ in some important ways
trade agreements; strengthening gov- from those of these earlier periods--
ernment commitments to basic sci- but there is no reason to believe
ence; pursuing education reforms, America now lacks the capacity to
worker training, and visa policies that overcome the challenge.
9
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