Thursday, March 29, 2018

How to Trade with China and WIN (and how not to)

Wait- the biggest economy in the world should consult two of the smallest to improve its trade management?

When it comes to China, yes.

A. The Numbers

Let’s start with the numbers:
·      US- 2017 Trade with China (per US Census website): Exports: $130.4 billion; Imports: $505.6 billion. Deficit: $375.2 billion (US trade with China 2017)
·      Australia- 2016-17 Trade with China (A$m billion): Exports: 95.7; Imports 61.5; Surplus 34.2. main export commodities eg., coal
·      (Australia Exports to China growth YOY= 27.8% Imports from China growth YOY=0.0% Australia trade stats 2017)
·      New Zealand- 2016 Trade with China (NZ$ billion): Exports 12.3; Imports 10.5; Surplus 1.8
·      (2017 total trade with China NZ$26.1 billion. Exports of dairy products increased 52% in 2017 NZ trade stats 2017)

So what happened here? Does China need products from Australia and New Zealand more so than those from US? The US is the #1 agricultural importer to China, far more than either AUS or NZ. But you cannot but scratch your head when you see that Australia’s exports to China in 2017 were 73% of those from the US.


B. The Art of  the Deal vs. Transcontinental Chess

President Trump wrote a book entitled, “The Art of the Deal.” And nobody can dispute that he has been successful in business by knowing how to make a deal. But, to me, Australia and New Zealand management of their trade with China looks more like the art of the deal than ours-IF judged only by the result.

So how did they do it? Easier than you might think, and logical too. Both countries have a trade deal with China which lowers tariffs and sets a path for a win-win- New Zealand since 2008, upgraded in 2016, and Australia since 2015.

To my knowledge, the relationship between the US and China has always been adversarial, and no president in the past (until Trump) has had the balls to stand up for US interests OR the smarts to say, hey, China, let’s sit down and explore common interests and come out with win-win (not Trump yet), THEN apply the leverage if China didn’t respond. So China has had an open bar for 20 years, got rich and spoiled on it, and cannot (even more than WILL not) stop the train so easily now without messing with their economy.

In fact, our business relationship with China seems like an amateur game of chess. Latest round: Little Move 1 Trump announces tariffs on China; Little Move 2 China announces tariffs on US; Little Move 3 Little Rocket Man shows up in Beijing. What will be Little Move 4? What it should be is for both countries to sit down, cut the BS and cut a trade deal. There is no doubt that China will not give up its goodies without getting something in return.

C. What Should We Do?

I believe the US has plenty to give in order to get a good deal.

First, US is China’s largest market. No fake news or propaganda can deny that.
Second, there are products that, for better or worse, are not being made in the US anymore and where China has a cost advantage; apparel is one of them, sorry y’all who had dreams of Made in America going back to the good old days. Never.
That does not mean that a viable and vibrant apparel industry cannot exist in the US-it CAN. It just has to be different than it used to be. You are not going to stop mass market clothes made in China and elsewhere from coming; In that area the two countries are codependent. And they are NOT mutually exclusive.

What’s at the core of the stasis in US? Local political interests and ethnocentric rhetoric. Shut them up for the greater good. Change the yahoo attitudes that cling to a Civil War mentality without a shred of business sense. Most important: get some dang HUMILITY.

Lower some duties on those products where we don’t compete anyway. Ask China to lower duties on items they need and that we want to sell more of.

How much difference will this make? IDK. I would love to be part of a government project to initiate and carry out this research. The results might be surprising, but in the least, we would be conducting ourselves like businesspeople rather than bombastic know-it-alls.

(Above is an extract of a lesson taught to my Global Marketing class at FIT)

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