The trade deficit with China: a case study in corporate America's successful global marketing.

EXECUTIVE SUMMARY

The growing trade deficit with China reached an astronomical high in the year 2000 of $83.8 billion. This is in just one year and with just one country! As of August 1996, the trade deficit with China surpassed the deficit with Japan. This paper views the trade deficit with China not in the traditional import-export way, but as the result of very successful global marketing campaigns waged by American corporations and American investors in China.

INTRODUCTION

The purpose of this paper is to search for reasons behind the U.S. trade deficit with China. Among the more salient issues, we will be looking at the following: involvement of U.S. investors in China; China's global trade policy and practices, and the recent changes in the Far East's economic environment. Upon close examination, we will see that the existing China-U.S. trade deficit is likely due to the following reasons: the U.S. companies' successful investments in China; China's trade barriers on imports including its non-compliance with trade agreements; and, possible discrepancies in the trade statistics itself.

Could successful global marketing as practiced by U.S. firms have played a role in making the trade deficit with China even larger than that with Japan? There is an important distinction between the U.S. trade deficits with China and Japan that must be understood. In the case of Japan the deficit is due to either Japanese firms like Toyota exporting their products (e.g. Lexus) into the U.S., or Japanese-owned firms selling their products into a traditional export VMS (Japan Tariff Association, 2000). At any rate, American firms and investors play a minority role. However, the trade deficit with China is another story. It appears that most of the Chinese exports into the U.S. are from American firms in China or those Chinese firms owned mostly by American investors.

SUCCESSFUL GLOBAL MARKETING BY U.S. FIRMS

An important reason behind the increasing deficit is the involvement of U.S. businesses investing in China. The Chinese government, in its drive toward modernization and reform, led to the implementation of the open door policy, the most important result of which has been that foreign companies were invited to participate in China's trading and investment opportunities (PriceWaterhouseCoopers,1990). There are three main reasons why American companies are so eager to answer China's call for investors: low-cost labor an extensive new market, and government tax breaks.

China's Low Cost Labor

In today's global economy, American companies are seeking solutions to minimize production costs in order to be competitive in their industry. With the rising cost of labor in the United States, one answer for the company is to venture overseas, seeking new sites that promise low-cost labor among other things. American companies are taking on this low-cost labor issue to manufacture their products in China. Norman Givant, a British lawyer from Freshfields, agrees that China does not even have to offer incentives to foreign investors in order to attract them (Shanghai Bureau Report, 1995). It is true that China, because of its low-cost labor, manufactures "miscellaneous articles" for many countries in the world. In fact, it is the leading category of items imported by the U.S. from China, totaling $49.4 billion in 2000. With the rising cost of labor in this country, more manufacturing contracts are given to China. AT&T, for example, recently reached a one billion dollar agreement to manufacture switches, wireless phones and integrated circuits (Clifford, 2001).

However, by moving production sites to China in search of low-cost labor, these American companies are directly responsible for the decrease in the amount of total exports to that country. Since the product is no longer produced in the U.S., trade statistics will show a decrease in total exports. Items such as machinery and transport equipment (for railway, aircraft, and ships) showed a decline in U.S. exports for the years 1993 …