Tug-of-War Over Trade

Jer

ry Rowland feels the dragon breathing down his neck. He's the CEO of National Textiles, a T-shirt maker in a state that has lost more than 37,000 textile jobs since the U.S. lifted quotas on Chinese imports two years ago. Unless Rowland's North Carolina workers suddenly become competitive with Chinese counterparts who earn just a few dollars a day, he fears his employees will be next. The plainspoken Southerner ticks off what he regards as China's unfair advantages: excessive government protection, an underpriced currency, cowed and underpaid workers, exports dumped below cost. If Washington won't help, Rowland says, he will have to move some jobs overseas. The new quotas slapped on some Chinese textiles last month, he contends, aren't enough. "Our government has done nothing," says Rowland, "just a little bit of hand slapping."

Half a world away, Yang Rong manages the privately run Jinhua Asset Underwear Co., with a factory tucked into verdant hills a few hundred miles from Shanghai that exports some of the world's sexiest lace bras. On his shop floor, surrounded by 200 young workers outfitted in pink kerchiefs and aprons, Yang points to the wall on which he has taped a laminated list of rules issued by Walt Disney Co., with which Asset Underwear has a contract to make clothing featuring Disney characters. The list prohibits, among other things, indentured servitude and "slavery." Yang thinks that's funny. His laborers come from villages across China to work 8-to-10-hour days for up to $120 a month and consider that a pretty good deal in a nation where urban per capita income is $78. Looking up from her C cups, Lou Xuxiao, 20, brags about the new electric moped "I never thought I'd own."

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While Yang is sowing prosperity in China, the U.S.'s new penchant for protectionism could bust his big plans for brassieres. Asset Underwear, which grossed $10 million in exports last year, recently began negotiating with Sara Lee, maker of Playtex and Wonderbra, to produce some of its lingerie. But the new quotas on Chinese bras, bathrobes and knit fabrics have forced the Chicago company to withdraw. Yang is mystified. "Why can't the Americans stick to making what we can't?" he asks. "For little things like bras, nobody can compete with China."

Right you are, Mr. Yang, which is why the U.S.'s uneasy embrace of globalization is chafing against China's emergence as the world's workshop. China rules in stocking stuffers, but it's climbing the technology ladder too. Its huge pool of cheap labor — up to 500 million peasants are expected to migrate to cities in search of factory work over the next two decades — should provide 20 more years of growth for an economy that already produces a quarter of the world's television sets and washing machines and half of its cameras and photocopiers. U.S. towns built on products that seem uniquely American — think A.T. Cross pens from Lincoln, R.I.--have been devastated as employers moved whole factories to China.

The trade spat risks escalating into a nasty war, especially if politicians try to make it a major campaign issue next year. Some U.S. manufacturers are complaining and demanding protectionist legislation from an Administration that seems to be listening — at least with one ear. Although he bills himself as a free trader, Bush is finding it hard to ignore the millions of manufacturing jobs that have disappeared from states, like Pennsylvania and North Carolina, that will be pivotal in next year's election. He has unleashed Commerce Secretary Don Evans and Treasury boss John Snow to bark at the Chinese about exports and the cheap value of the yuan. Lawmakers sensitive to job dislocations among their constituents have loaded into the pipeline at least six bills that relate to trade with China. Jim Leach, the Iowa Republican who chairs the East Asian and Pacific Affairs Subcommittee of the House's International Relations Committee, says that future conflicts with Beijing will be "more about geo-economics than geopolitics" and that it's "largely up to China" to ease tensions. Last year China, at $103 billion, surpassed Japan as the country with the largest trade surplus with the U.S.

The Administration had a chance to raise some of these issues with Chinese Premier Wen Jiabao when he visited Washington last week. But there were few signs that trade issues were a big concern. Wen accepted the 19-gun salute he received on the South Lawn of the White House, then fired his own volley, gently reminding his hosts that China is the fastest-growing market for America's exports. There are certainly U.S. companies that agree. Multinationals such as Motorola and Caterpillar have invested heavily in China and strongly oppose protectionism targeted at China.

The fact is, while all countries engage in trade practices that aren't always legit (example: U.S. steel tariffs, which were lifted only two weeks ago after 20 months), China is not a particularly egregious trade cheat. China is far more open to foreign investment and imports than Japan was during its boom years in the 1980s. Few countries have embraced globalization at greater risk. The shutdown of inefficient state-owned plants has cost China tens of millions of factory jobs, with more to go.