December 05, 2007
Wednesday AM

KINGSTON, R.I. -- Any discussion of the pros and cons of globalization doesn't get very deep without focusing on China.

In the span of less than 25 years, the economies of the United States and China have become intertwined. Shoppers buy toys at Wal-Mart that were made in China. Homeowners pay record prices for heating oil, in part, because of China's appetite for energy. The Chinese government buys Treasury bills that Washington issues to finance government spending.

The interdependence grows deeper every year.

But is China's growth sustainable, or desirable?

No, on both counts, says George Shuster, chief executive officer and president of Cranston Print Works in Rhode Island. He argues that China's emergence, sparked by unfair trade laws, has cost the United States jobs, weakened our industries, created economic inequality, especially for women and minorities, damaged the environment and corrupted the Congress.

Yes, says Ming Wan, professor of public and international affairs at George Mason University. He says the relationship between the United States and China will evolve to reduce the inequities and address global issues because it is in the self-interest of each country to make globalization work.

Shuster and Wan discussed China at last week's session of the 2007 University of Rhode Island Honors Colloquium, titled China Rising, on the university's campus in Kingston, R.I.

The panel discussion opened with a brief history of China's economic development by Satya Gabriel, who teaches corporate finance and comparative economic systems at Mount Holyoke College.

He explained that after Mao's death in 1976, China's leaders pursued a strategy, which Gabriel called Modernist Marxism, to transform the country through the use of technology. That technology, including the engineers and oil needed to build an industrial power, was available in the West and Japan, and could be bought with hard currency - the yen and the dollar.

China could accumulate the hard currency from the United States by selling cheap goods to Americans. To produce the goods, China allowed the entry of multinational corporations, including many Fortune 500 companies, to set up factories and use low-cost labor to produce things.

"With the hard currencies that flowed to China, the government bought the technologies it wanted," Gabriel said. China also used the dollars it earned to buy Treasury securities sold by the U.S. government to finance its debt. That gave China leverage in international trade, environmental and human-rights policies.

"The U.S. economy has become more or less dependant on the Chinese," said Gabriel.

Wan, the international affairs professor, discussed how big and influential China has grown in the global economy. He said that while there has been criticism of official Chinese statistics, most economists agree that the country is growing at about 10 percent a year, more than two or three times the U.S. rate. And while the U.S. economy is still five times bigger than China's, it is catching up fast. Some economists estimate it will equal, and pass, the United States in the next decade.

That growth has created a huge demand for building materials and natural resources, with China consuming one-third of the steel and half of all the concrete that is produced worldwide.

China, however, is still not a technology leader, and uses its resources and factories inefficiently. Wan said that there is a mismatch between the growth of China's export and domestic economies. For the country to sustain its growth, it must do a better job of expanding the domestic side of its economy. Rather than being just a workshop to the world, China needs to develop its own industries and products, and create its own consumer economy.

But for now, at least, the two economies are tied tightly together.

"If the U.S. economy crashes, China will suffer," he said.

Shuster, co-chairman of the American Manufacturing Trade Action Coalition, said Cranston Print Works, one of the country's oldest textile manufacturers, was among the earliest U.S. companies to open trade relations with China in the mid-1970s. Since then, he has watched the development of an unfair trade policy, tilted to benefit China.

For example, he said the tariff on imports to the United States from China is 1.3 percent, while the tariff on exports to China is 40 percent.

"It's not free trade," he said. "The American people are being lied to. ... The U.S. trade policy is designed to help imports and not to help exports."

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