Tuesday, April 18, 2006

Eye on China: Americans accept trade-offs

By Matthew Benjamin

Americans want to maintain good economic relations with China and are less concerned about the near-record US trade deficit, according to a Bloomberg/Los Angeles Times poll.

By a margin of 50 per cent to 26 per cent, Americans say China should be allowed to proceed at its own pace in making its currency more flexible rather than being forced to make changes to reduce the trade gap with the US. That view contrasts with the atmosphere and rhetoric in the US Congress, where at least 15 legislative measures have been introduced in the past year addressing trade and currency issues with China. Politicians say China is keeping the yuan artificially weak to increase exports.

"China is on its way to being an economic giant," said Rick Haverman, a 46-year-old high school history teacher in Spokane, Washington, who participated in the poll. "That trumps the trade deficit, which I see as more of a short-term problem."

Americans are also supportive of foreign investment in the US, with nearly 7 in 10 saying overseas companies should be allowed to put money into some areas of the US economy, according to the survey of 1357 adults conducted from April 8 to April 11. The margin of sampling error is plus or minus 3 percentage points.

The news isn't all good for overseas companies looking to do business in the US. Fifty-one per cent said some restrictions on investment are more important than the jobs such investments create.

Exports, including to the US, helped China vault ahead of Britain in the fourth quarter to become the world's fourth largest economy.

The US trade deficit swelled to a record US$726 billion ($1.2 trillion) last year, including a shortfall of US$202 billion with China. The overall gap narrowed in February from the previous month, the Commerce Department said on April 12.

"There is broad public support for global engagement, not global withdrawal," said Tom Mann, a congressional scholar at the Brookings Institution in Washington.

Haverman's attitude, typical of many respondents contacted after the poll, probably reflects current economic prosperity, says Nicholas Lardy, a senior fellow at the Institute for International Economics in Washington.

The US jobless rate matched a four-year low of 4.7 per cent last month, and the Conference Board's measure of consumer confidence climbed to the highest since 2002.

"We're at almost record low unemployment, so the trade deficit isn't perceived to be weighing on jobs like it was a few years ago," said Lardy, author of six books on Chinese economics and government policy.

The value of the yuan will probably be discussed by President George W. Bush and Chinese President Hu Jintao when Hu arrives in Washington this week. Bush has chosen to tread lightly on the topic, while Congress has been pressing him to force the issue.

A Senate bill sponsored by Charles Schumer, a Democrat from New York, and Lindsey Graham, a South Carolina Republican, would impose 27.5 per cent tariffs on Chinese imports unless the yuan rises. They delayed a vote on their bill until September.

As for American attitudes on US-China relations, "the two things aren't contradictory", Schumer said. "A good relationship with China in part depends on their willingness to stop manipulating their currency."

Another trade issue, foreign investment in the US, flared in Congress during February when Dubai-based DP World attempted to buy several US port facilities. Opposition from Republicans and Democrats, citing national-security concerns and a lack of consultation, forced the firm to abandon the purchase.

One bill, introduced by House Armed Services Chairman Duncan Hunter of California, would require any company that owns or operates an asset deemed "critical infrastructure" by the Defence Secretary to be majority-owned by US citizens.

Only 16 per cent of Americans say foreigners should be barred from investing in the US. At the same time, just one in 10 said foreigners should have carte blanche to buy whatever they want. Most said foreigners, including those in Arab countries, should be allowed to invest in "some areas" of the US economy.

"I wouldn't want to eliminate foreign companies from investing in anything in the US," said Mckenzie Laurence, 26, a real estate broker in Jacksonville, North Carolina. "But there are certain lines in the sand I'd be more comfortable that they didn't cross."

Laurence, who took part in the poll, said barring foreigners from defence-related industries would be prudent, as well as keeping them from dominating any single market.

"The US needs to compete for foreign investment, because there are many other places to invest now," said George Nolen, chief executive officer of Siemens, a unit of Siemens AG, Germany's largest engineering company. Siemens employees 70,000 people in the US.

Jobs may also be the issue there, said Lardy.

"There's a fairly widespread understanding that foreign investment in the US helps create jobs," he said.

Americans are slightly less amenable when the foreigners are Arabs. Twice as many said Arabs should be barred from investing in the US as those who said foreigners in general ought to be excluded.

For most Americans, "English speakers from Australia are one type of investor, and those from the Middle East are another type of investor," said Edwin Feo, co-chairman of the Global Project Finance Department at law firm Milbank, Tweed, Hadley & McCloy in Los Angeles, which represents foreign companies looking to invest in US infrastructure.

Despite a general openness of Americans to foreign investment, Feo says he's seeing growing opposition after the failed DP World deal.

This week, Cintra-Macquarie, a Spanish-Australian consortium, is scheduled to sign a 75-year lease on a toll road in Indiana. The deal may be delayed by a lawsuit filed by a group of Indiana citizens.

"Americans feel that everything is slipping out of our hands, and we're losing control of our whole way of life here," said Steve Bonney, a West Lafayette, Indiana, farmer who represents the group. "Globalisation is working against us."

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