The health of the U.S. economy depends on trade with China.
I recently got an earful from Pennsylvania Gov. Ed Rendell. I was in Beijing on a reporting assignment, and I was speaking with Rendell, who was at CNBC’s studios in Englewood Cliffs, N.J. Congress was about to vote on a bill that would allow the U.S. to seek trade sanctions against the Chinese if they were found to be manipulating their currency to gain trade advantages, a tactic, Rendell alleged, that China has been using far too long. “China pushes and pushes, and they’re like the bully,” the governor fumed in the televised interview. “You eventually have to say to the schoolyard bully, ‘Enough!'” Besides, he added, “what are they going to do?”
You’ll hear similar rhetoric from U.S. politicians of all stripes. Look around the country and there are plenty of things to feel bad about, starting with our outrageously high unemployment picture. And it’s easier to point the finger of blame at outside influences — especially secretive, communist influences — than to admit our own failure to fix the struggling economy. That’s why China has become a popular punching bag. But as popular as China bashing has become, it’s also very dangerous.
To answer Rendell’s question, there are quite a few things the Chinese might do to retaliate against the U.S., and none of them are good for our economy. If you want a recent example, just think back to what happened last year when President Obama decided to slap tariffs on tires made in China. Less than two days later, China began its own investigation into U.S. exports of chicken and eventually responded with a tariff on poultry products coming from America. The tariff, which can more than double the cost of purchasing an American chicken in China, threatens what was a major market for the U.S. poultry industry last year. And that could mean the loss of U.S. jobs at a time when every job counts.
It’s a point not lost on Stephen Roach, who was chairman of Morgan Stanley’s (MS) Asian operations for years. Roach has been warning high-level U.S. officials to be careful when pushing China around on trade. “If we play our cards right, China can offer potential job opportunities to the U.S. that we can’t find anywhere else,” Roach says.
But if we play our cards wrong, the risks are just as great. Only a few months ago President Obama vowed to double the value of U.S. exports over the next five years, which would go a long way toward creating jobs here at home. Fat chance, unless China is part of the equation. China is our third-largest export partner, behind Canada and Mexico. “We can’t do it without China,” says Roach. “It’s mathematically impossible.”
It seems perverse, the logic that having strong trade ties with China might actually lead to new jobs here at home. Indeed, it often seems as if we’re on the losing side of any trade partnership with China. Its cheap labor has cost the U.S. countless manufacturing jobs, and to Rendell’s point, it is hard for us to compete with companies that receive considerable overt — and hidden — subsidies from their government. Regardless, we make lots of things better than China does, and its 1.3 billion consumers may soon be clamoring to buy them.
Let me give you a concrete example of how being a good trade partner to China can lead to real jobs here in America. Sen. Kit Bond of Missouri has been actively trying to build a hub for Chinese imports in St. Louis. Bond recognizes that every time a Chinese plane empties its hold, it will need something to take back on its return to make the trips economically viable. And the Midwest has plenty of products to ship back to the Chinese: Emerson Electric’s electronic components, genetically improved seeds from Monsanto (mon), and vacuum-packed beef and pork products from Midwestern farmers. Many of those items can’t survive the six-week process of being sent by ship, like the fast-growing seedlings a local nursery supplies to meet China’s need to rapidly reforest. “It only costs about 80¢ to $1 to ship these items back on the back-haul, so that would be very attractive,” says Bond. Right now Missouri does about $1 billion in exports to China, but the Chinese have promised to double that if the hub opens. Bond estimates that would mean 10,000 to 20,000 jobs for his home state.
Jobs that we could use here in America right about now.
Becky Quick is an anchor on CNBC’s Squawk Box.