Tug-Of-War Over Trade

Jerry Rowland feels the dragon breathing down his neck. He's the CEO of National Textiles, a T-shirtmaker in a U.S. 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. Rowland 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, he says, he'll have to move some jobs overseas. The quotas the U.S. set on some Chinese textiles in November aren't enough. "Our government has done nothing," he says, "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 hills a few hundred kilometers 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 contracts 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 good deal in a nation where urban per capita income is $86 per month. Looking up from her C cups, Lou Xuxiao, 20, brags about the new electric moped "I never thought I'd own."

While Yang is sowing prosperity in China, the U.S.'s new penchant for protectionism could bust his big plans. Asset Underwear, which grossed $10 million in exports in 2002, recently began negotiating with Sara Lee, maker of Playtex and Wonderbra, to produce some of its lingerie. But the quotas on Chinese bras, bathrobes and knits 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 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 identified with products that seem uniquely American — think A.T. Cross Pen of Lincoln, Rhode Island — have been hurt as employers shift at least some production to China.

Companies in Europe are also feeling the pain. Competition from Chinese manufacturers helped push exports of Italian textiles down by around 6% in 2002. And over the past year, cheap Chinese imports of everything from footwear to TV parts have forced several manufacturers to close factories in Britain. Last year, R. Griggs — the maker of Dr. Martens boots — laid off more than 1,000 workers, shut its British plants and outsourced production to China.

The trade spat risks escalating into a nasty war, especially if politicians try to make it a major campaign issue this year. Some U.S. manufacturers are demanding protectionist legislation from an Administration that seems to be listening — at least with one ear. Although he bills himself as a free trader, President Bush is finding it hard to ignore the millions of manufacturing jobs that have disappeared from states that will be pivotal in this year's election. He has unleashed U.S. Commerce Secretary Don Evans and U.S. 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. In 2002, China, at $103 billion, surpassed Japan as the country with the largest trade surplus with the U.S.

The Bush Administration had a chance to raise some of these issues with Chinese Premier Wen Jiabao when he visited Washington in December. 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 U.S. companies that agree. Multinationals such as Motorola and Caterpillar have invested heavily in China and strongly oppose protectionism targeted at China.