To the benefit of Western New York, Congress recently decided to grant China Most Favored Nation (MFN) trade status for another year. But this year the stakes are higher.

In 1996, New York State ranked 41 out of 50 states in private-sector job growth. Even as New York's manufacturing sector has declined, exports sustained approximately 650,000 jobs in 1997. And compared to other U.S. states, New York ranked as the third largest merchandise exporter to the world, with shipments of approximately $50 billion.

According to a report published by the Business Council of New York State, Inc., export-related production is the primary source of new jobs in New York's manufacturing sector. The report also indicates that merchandise exports from New York have grown more than twice as fast as the state's economy since 1994, clearly indicating a strength that needs to be nurtured.

Exports also are essential to our country's prosperity. During the past decade, U.S. exports of goods and services accounted for one-third of U.S. economic growth. In 1997, exports reached $930 billion, rising 74 percent since the decade's beginning. According to the U.S. Trade Representative Office of Economic Affairs, U.S. exports of goods and services supported approximately 12 million jobs in 1997. And many of these jobs are in high-tech sectors.

The Office of the Chief Economist, Department of Commerce, estimates that high-technology industry jobs supported directly by exports pay 34 percent more than the average national wage; jobs supported directly by exports pay 20 percent more; and workers in jobs supported both directly and indirectly by exports are paid 13 percent more.

Furthermore, companies that export expand their employment base approximately 20 percent faster than others, and are 10 percent less likely to fail. Thus, exports are very important to the prosperity of New York companies and workers.

As the relationship between exports and our national and local economies becomes more entwined, China becomes a more important export destination. In 1997, the United States exported $13 billion in exports to China. This sustained approximately 170,000 American jobs. In relation to other states, New York was the fourth largest exporter to China, shipping $776 million there. And New York's primary exports to China are high-technology products — manufactured by highly-paid skilled workers.

But that's not all. The six largest New York State export industries, responsible for 84 percent of all manufactured goods shipped to China, also employ roughly half of all manufacturing workers in New York State. These goods include industrial machinery and computers, food products, transportation equipment, electric and electronic equipment, chemical products, and scientific and measuring instruments. Consequently, the Chinese market has become very important to the welfare of state and local workers.

This year, the Asian financial crisis has elevated China's importance to the United States. According to Federal Reserve Chairman Alan Greenspan, “With the crisis curtailing the financing available in foreign currencies, many Asian economies have no choice but to cut back their imports sharply. Disruptions to their financial systems and economies more generally will further dampen demands for our exports of goods and services."

Certain U.S. regions that are more dependent on exports to East Asia will be affected to a greater extent than less dependent regions. Western states are expected to be affected the most; Northeastern states are anticipated to be affected the least. Nevertheless, New York is not out of the woods.

In 1997, approximately 25 percent of New York's exports were destined for the "Asian 10," which is comprised of China, Hong Kong, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, and Thailand. Most of these countries have been severely impacted by the crisis. And primarily for other reasons, Japan is undergoing one of its worst economic slumps in recent history.

China, however, has emerged relatively unscathed by the Asian financial crisis. Its economy, currently the world's third largest, is still anticipated to continue growing at one of the fastest rates in the world to become the world's largest early in the 21st century. As New York exports to other East Asian countries drop as a result of the Asian crisis, more exports could be redirected to China, home to 1.2 billion consumers with fast-growing incomes.

Now, U.S.-Chinese relations are even more important as a result of heightened tensions between Pakistan and India. As those two countries attempt to flex their military muscle and display their new nuclear capabilities, China and the U.S. need to cooperate as never before in order to check the increasing probability of a military miscalculation.

How does MFN trading status impact U.S.-China trade and relations? Despite its name, MFN is granted to 220 of our 228 trading partners. When a foreign country has this status, its goods enter the United States at a normal duty rate. If not, its goods are assessed duty rates exceeding 50 percent, making them noncompetitive here. Denial of MFN for China would result in the United States imposing such high tariffs on Chinese products that their access to our market would virtually cease. Those who believe our global trade deficit would decrease are mistaken. The import gap would quickly be filled by other Asian suppliers.

In response, the Chinese would retaliate and severely restrict or totally eliminate our access to their market. This greatly would hurt New York companies and workers. Additionally, denying China MFN trade status would inevitably lead to deteriorated U.S.-Chinese relations, fostering an environment of alienation and suspicion. Any U.S.-Chinese cooperation for the purpose of reducing Chinese trade barriers on U.S. goods and services, eliminating tension between Pakistan and India, or maintaining stability of China's currency — which is under competitive pressure to devalue as a result of fallen currencies in other East Asian countries — would be highly unlikely.

If MFN is not granted, our access to the Chinese market would undoubtedly come to an end. On the other hand, granting China MFN trade status will give U.S. and New York State companies secure access to that tremendous market. The United States, which accounts for only 4% of the world’s population, needs to sell to the other 96%. Passing MFN legislation will help us to achieve this. And although trade is not a panacea, it is one of the best tools we have to influence foreign government policies with which we don't always agree.

This article appeared in The Buffalo News, August 1998.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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