The U.S. government’s call to ‘buy American’ is bound to sting some Chinese exporters, as well as the world’s open market.
Shen Minggao and economist He Yin, Caijing 17 February 2009
Even before the latest U.S. economic stimulus plan incorporated a controversial “buy American” provision, the world knew that trade protectionism was on the march.
China, America’s second-largest trading partner and a nation heavily reliant on overseas markets, has little chance to avoid damage when markets are shuttered. Although a large-scale trade war is unlikely, given strong protests against trade protectionism around the world, conflicts are inevitable in certain areas. So which industries are most likely to suffer?
“Buy American” falls into the category of non-tariff trade barrier, as opposed to more blatant market-blocking measures such as duties on imported goods. The concept dates to the Great Depression of the 1930s, when the United States tried to give domestic industries a hand and save jobs.
To determine which industries have the greatest chance to win government favour in the latest stimulus, consider four indicators: the amount of value added in 2007-’08; import growth; changes in the ratio of imports to domestic production; and employment levels.
Based on these criteria, the U.S. steel industry is most likely to be pampered. This industry has had the largest increase in import-to-domestic production ratios among 23 industries studied recently, and ranks fifth in terms of a decrease in value-added.
So it is not surprising to see the “buy American” provision taking care of the steel industry, without mentioning that steelmakers are traditionally influential, with powerful trade groups and lobbyists. Farther down on the list are manufacturers of wood products, the petroleum and coal industries, the chemical sector, tobacco, and furniture.
Which industries in China are most vulnerable to protectionist activity? Steel, wood products and furniture manufacturers have the most to worry about. This can be determined by looking at the percentage of goods sold on a particular U.S. market that come from China, and the percentage of products made by a Chinese industry that are bound for the U.S. market.
Based on the first determinant, furniture is No. 1. More than 48 percent of furniture on the U.S. market is made in China. That sector is closely followed by metallic products (47.4 percent), clothes and footwear (41.8 percent), textiles (33.6 percent), non-electric machines and equipment (29.2 percent), and machinery and electronic products (26.5 percent).
China’s share in certain U.S. markets has risen sharply over the past 10 years. Only 1.8 percent of the steel on the U.S. market in 1997 came from China, while today it’s 18.5 percent. China’s shares of the U.S. markets for rubber and wood products have expanded rapidly as well.
Considering the second criteria, the more reliant on a U.S. market, the worse the damage to a Chinese industry due to the deteriorating overseas environment. Again, furniture and wood products turn out to be most dependent on exports to the United States, which is a final destination for nearly half the furniture and 33.2 percent of the wood products made in China.
Despite looming protectionism in these industries, China is unlikely to launch a full-fledged retaliation. That would be a lose-lose reaction. But it may choose to set barriers in some industries in which the United States is a net exporter to China. The minerals industry is one possibility.
Above all, protectionism is the least sensible approach to address trade imbalances between these two countries. Open markets are the best solution. Why doesn’t the United States loosen its control of high-tech exports to China and its restrictions on Chinese investment in the United States?
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Watch Out! Here Come Trade Protectionists
The U.S. government’s call to ‘buy American’ is bound to sting some Chinese exporters, as well as the world’s open market.
Shen Minggao and economist He Yin, Caijing
17 February 2009
Even before the latest U.S. economic stimulus plan incorporated a controversial “buy American” provision, the world knew that trade protectionism was on the march.
China, America’s second-largest trading partner and a nation heavily reliant on overseas markets, has little chance to avoid damage when markets are shuttered. Although a large-scale trade war is unlikely, given strong protests against trade protectionism around the world, conflicts are inevitable in certain areas. So which industries are most likely to suffer?
“Buy American” falls into the category of non-tariff trade barrier, as opposed to more blatant market-blocking measures such as duties on imported goods. The concept dates to the Great Depression of the 1930s, when the United States tried to give domestic industries a hand and save jobs.
To determine which industries have the greatest chance to win government favour in the latest stimulus, consider four indicators: the amount of value added in 2007-’08; import growth; changes in the ratio of imports to domestic production; and employment levels.
Based on these criteria, the U.S. steel industry is most likely to be pampered. This industry has had the largest increase in import-to-domestic production ratios among 23 industries studied recently, and ranks fifth in terms of a decrease in value-added.
So it is not surprising to see the “buy American” provision taking care of the steel industry, without mentioning that steelmakers are traditionally influential, with powerful trade groups and lobbyists. Farther down on the list are manufacturers of wood products, the petroleum and coal industries, the chemical sector, tobacco, and furniture.
Which industries in China are most vulnerable to protectionist activity? Steel, wood products and furniture manufacturers have the most to worry about. This can be determined by looking at the percentage of goods sold on a particular U.S. market that come from China, and the percentage of products made by a Chinese industry that are bound for the U.S. market.
Based on the first determinant, furniture is No. 1. More than 48 percent of furniture on the U.S. market is made in China. That sector is closely followed by metallic products (47.4 percent), clothes and footwear (41.8 percent), textiles (33.6 percent), non-electric machines and equipment (29.2 percent), and machinery and electronic products (26.5 percent).
China’s share in certain U.S. markets has risen sharply over the past 10 years. Only 1.8 percent of the steel on the U.S. market in 1997 came from China, while today it’s 18.5 percent. China’s shares of the U.S. markets for rubber and wood products have expanded rapidly as well.
Considering the second criteria, the more reliant on a U.S. market, the worse the damage to a Chinese industry due to the deteriorating overseas environment. Again, furniture and wood products turn out to be most dependent on exports to the United States, which is a final destination for nearly half the furniture and 33.2 percent of the wood products made in China.
Despite looming protectionism in these industries, China is unlikely to launch a full-fledged retaliation. That would be a lose-lose reaction. But it may choose to set barriers in some industries in which the United States is a net exporter to China. The minerals industry is one possibility.
Above all, protectionism is the least sensible approach to address trade imbalances between these two countries. Open markets are the best solution. Why doesn’t the United States loosen its control of high-tech exports to China and its restrictions on Chinese investment in the United States?
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