Made in China

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Whenever manufacturers get together today, the topic of conversation invariably turns to China. The threat of SARS dominates today's headlines, but their greater concern is one of economics.

With astonishing speed, China is emerging as a global manufacturing powerhouse. Backed by an inexpensive labor force, rapidly improving production quality, new sources of capital, a more dynamic private sector and a deliberately undervalued currency, China is supplying a growing range of products to the global marketplace.

Manufacturers are particularly worried because China's production is quickly moving beyond the traditional areas of textiles, toys, and footwear -- and into higher-technology production. Machinery imports from China are up nearly 50 percent in the last 12 months. Furniture imports are up over 40 percent, organic chemicals by 40 percent. The list goes on.

Small manufacturers despair of competing against low-cost Chinese products. But even successful multinational corporations express concern and tell us that, unless things change, it is only a matter of time before they have to move production to China. The same story is heard from firms in Japan, Europe and even many developing countries.

Last year, America's trade deficit with China passed the $100 billion mark, the first time the world has seen such a large bilateral imbalance. Imports from China are six times as large as our exports, and this bilateral trade deficit is now one-fourth of our global trade deficit. If these trends continue, within five years our deficit with China would more than triple to over $300 billion -- surely igniting a blaze of protectionism.

Protectionism, however, is not the answer. It would impose a huge tax on U.S. consumers, particularly lower and middle income families. And it would trigger cycles of global retaliation that would rebound and hit the United States hard.

The better alternative is to insist that our bilateral trade follow market-driven rules that level the playing field and allow U.S. producers to use their own formidable competitive advantages. But we need a strategy to make this work.

First, we must ensure that China complies with world trade rules. China recently joined the World Trade Organization (WTO) and made commitments to open its market and to trade by the same rules as other nations. We need to hold China to these commitments. Addressing the rampant abuse of intellectual property rights, the lack of regulatory transparency and lax trade law enforcement by local authorities should be high priorities.