A Business Split Over China

    There is a growing split within the business community over China--but I think there is something for the forces of good to work on here that might drive a deeper wedge between small business and big business. Business Week reports in its August 14th issue about a growing split among members of the National Maunfactures Association (BW is subscription only so here's an excerpt):

A Trade War Right At Home: A deepening rift over China pits big U.S. companies against small ones

For decades, Washington's business lobby has led the charge for trade liberalization, with companies standing shoulder to shoulder in support of tariff-busting and free-market pacts.

Now that united front could be crumbling. A rift at the National Association of Manufacturers over trade with China points to a deepening division within the business community that reaches far beyond the Beltway. The split pits smaller U.S. manufacturers, who want the U.S. to combat the trade imbalance caused by China's currency manipulation, against their larger and more global peers, some of which are benefiting from the undervalued Chinese yuan. If the little guys prevail -- as they did in an early skirmish -- NAM, with 12,000 members, could become the first major group to endorse broad trade sanctions against a major trading partner.

"It is an extremely troubling sign," says Stuart E. Eizenstat, an adviser to President Clinton and now a law partner at Washington's Covington & Burling. "The universally accepted notion that the business community would always be there for free trade initiatives is beginning to splinter."

On Sept. 27, NAM's 250-member board of directors will consider endorsing legislation that would allow the U.S. to retaliate against China and other countries that manipulate their currency to gain an export edge. Caterpillar (CAT ), General Electric (GE ), Cargill, and others that benefit from cheap Chinese labor and exports, oppose the bill.

Normally, this would have been enough for NAM. But all that changed on June 29. In a surprise revolt, smaller NAM members showed up in droves at a meeting of the group's trade-policy committee to out-vote larger members. By a 75-46 margin, the panel endorsed the Chinese Currency Act of 2005, a bill from Representative Tim Ryan (D-Ohio) and House Armed Services Committee Chairman Duncan Hunter (R-Calif.)

    To put some names on the split, companies like Wal-Mart thrive on the currency manipulation because, without China's ready pool of low-wage workers, Wal-Mart would be in trouble--for all its talk of being an adherent of the "free market," Wal-Mart could never survive in a free labor market. China keeps its wages artifically low--and the currency difference solidifies the cost advantage.

    That makes smaller businesses unhappy. And they are now rising up. See, I wonder if there is an alliance to be made--temporary, perhaps--between labor and small business over the China currency issue. Both sides would gain--and maybe, just maybe, there might be some openings among small businesses on the question of at least allowing card check in union drives.

Comments

[Jeremy Gordon]

It is good to see this issue getting some exposure. The debate in the US is worrying for a number of reasons, and I have looked at these on a recent post on the China Business Blog. My main concerns are that laying blame on China's fixed currency system is ignoring the real problems facing US (and for that matter EU) manufacturing, and that we risk alienating China at a time when it would be sensible to promote positive engagement.