Opportunities seen but barriers remain
BY FRANK NORTON
Of The Post and Courier Staff
It's a familiar story to South Carolinians: Mount Vernon Mills Inc. in the past year has cut 1,000 jobs, or about 15 percent of its work force, to keep its mills running in the face of stiff competition from textiles made in China.
"We're letting all of these jobs go to a communist country, and we still have no idea where the next wave of job creation is going to come from," complained Richard Turner, president of the Spartanburg-based company.
The result has been successive waves of cheap imports that have hammered U.S. producers, deepened the trade deficit and created an outcry from industry advocates and politicians to protect U.S. jobs and penalize China for unfair trade practices.
Yet beneath the stir, a quieter movement is taking form, one that encourages embracing a nation of 1.3 billion people as a potentially lucrative market. That trend stands to gain steam if current government efforts produce meaningful changes in the way China does business.
"Our perspective is that China is a customer, and a very large one at that, so we're probably the counterbalance to the people saying, 'Oh, my God, they're taking our jobs,' " said Ted Soderlund, who heads Nova Gas Technologies in North Charleston.
Soderlund said his company's exports to China, and Asia in general, have picked up considerably in the past couple of years. The maker of specialty gases for lasers used in eye surgery and in the production of semiconductors draws about half of its revenue from exports.
In analyzing America's rift with China, few places offer a better vantage point than South Carolina. On one hand, its once-strong industrial base has crumbled in recent years under the onslaught of foreign competition. But the state's exports and investment relationships with China and other nations are starting to take off.
A point worth considering: The value of South Carolina's exports to China increased 70 percent between 1999 and 2002 and is expected to increase further in 2003.
China recently leapfrogged South Carolina's longtime trading partners, Italy and Brazil, to become its eighth-biggest buyer of domestic goods, mostly machinery, paper and plastic products -- a significant jump considering the communist nation only recently opened its markets to foreign goods and services.
"I don't see them overtaking Canada (the state's largest export market) anytime soon, but they could very well move to within our top five foreign buyers for 2003," said Clarke Thompson, director of international trade for the state Commerce Department.
Thompson said China's potential for investing directly in South Carolina could mean the creation of new jobs here and offset some of the losses sustained from the exodus of textile and other industries to lower-cost destinations.
One early example of that is the Haier Group, an appliance-maker and one of China's best-known companies, which in 2000 opened a $40 million plant in Camden.
The group's American unit, Haier America Refrigerator Co., now employs 200 American workers at the site and has plans to increase its market share in the U.S. for standard-sized refrigerators to 10 percent by 2005. The company said it decided to manufacture in Camden rather than China to save transportation costs.
Of course, many government and business leaders believe the imbalance in U.S.-China trade will not be remedied until China makes major changes in its economic policies. While Beijing last week announced two mega-deals to buy U.S. jets and autos, it has not enacted any systemic changes in the way it does business, leading some analysts to believe that the U.S. is moving closer to throwing up trade barriers of its own.
Along those lines, government officials have been talking tough lately. U.S. Commerce Secretary Don Evans recently warned China's premier that Washington will "vigorously enforce" its trade laws if Beijing fails to move ahead on commitments to open its markets.
Closer to home, Gov. Mark Sanford and state Commerce Secretary Bob Faith returned from a trade visit to China earlier this month to push for reforms and help make deals.
In his conversations with Chinese officials, Sanford underscored the potential for South Carolina to boost exports, attract investment and revive job growth back home by doing business with China. The governor believes strong ties with Beijing, despite its protectionist trade policies, will help exporters gain a foothold in China's economy and possibly lead to much-needed investment back home.
These ideas run counter to those of industrialists across the textile belt, people who believe the relationship with China is nothing but a drain on jobs and wealth.
Rather than a big new business partner, textile executives see China as a regime that uses subsidies, tariffs and currency manipulation to undercut American producers.
"The biggest issue stuck in our craw is that they are unfairly keeping their currency undervalued in order to make their exports cheaper," said Mount Vernon Mills' Turner.
He was referring to the Chinese central bank's pegging of that country's yuan at around 8.28 to the dollar -- a valuation that critics say is artificially low and enables China to underprice goods in foreign markets while making competitors' goods more expensive in China. Partly as a result, U.S. imports from China are expected to be five times greater than exports this year, helping push the nation's overall trade deficit to an expected $130 billion.
While the impact of China's restrictive trade policies is most noticeable in the textile and apparel industry -- China has increased its U.S. market share in certain apparel categories from 9 percent in 2001 to 53 percent in 2003 -- the economic fallout isn't hitting textile makers alone.
Lewis Gossett, president of the South Carolina Manufacturers Alliance, said trade with China has hurt makers of electronics and automotive parts as well.
He blamed China's export subsidies, its artificially pegged currency, lack of safety regulations and underpayment of workers.
In roughly the past three years, South Carolina has lost more than 58,000 manufacturing jobs, the highest per-capita job loss in the nation, led by declines in textiles and apparel.
Among the jobs lost: 650 positions cut last summer by electrical components maker Kemet Corp. The Greenville-based company has shifted much of its production to Asia. Last week, Kemet said it plans to open its second factory in China next year.
Nationwide, manufacturers say they have lost 2.7 million jobs in the past three years, and many say Chinese competition is a big factor.
Some members of Congress have been listening. A group of lawmakers is proposing to repeal China's normal trade-relations status with the U.S. and impose a 27.5 percent tariff on Chinese imports.
"In my opinion, we should protect our manufacturing job base from unfair trade policies just as we protect U.S. military lives from enemies," said Richard Dillard, a spokesman for Milliken & Co., another Spartanburg-based textile company. "Why should we sit and watch our jobs go to China, hoping and waiting for the knowledge economy to spring to life here?"
Other manufacturers agreed, saying the U.S. should impose stricter tariffs and quotas on Chinese imports.
That reaction is understandable, according to Michael Wald, a regional economist with the Department of Labor's Bureau of Labor Statistics in Atlanta.
But Wald pointed out that while some manufacturers have suffered from low-priced imports, consumers, retailers and port operators have benefited. Trade with China has led to job growth in some non-manufacturing sectors, but that trend has received little attention amid the louder outcry from groups that have suffered losses.
"It comes back to jobs," he said. "People losing them are a lot more vocal than people gaining them."
Whether China makes its policies more accommodating or the United States adopts retaliatory policies, it's likely that more jobs will be lost in the near term.
Ned Cochrane, a vice president at Mount Vernon, said additional layoffs and plant closings may be necessary to the company's survival in 2004 because of price competition from imports.
"We're not asking our governments to turn off the spigot of imports, we're asking them to level the playing field," he said. "Give us the opportunity to see if China really is a lower-cost producer, because without all their subsidies and currency manipulations, I'm not sure they are."
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