Monday, May 30, 2005 - China Cancels Tariffs On Textile Exports - China Cancels Tariffs On Textile Exports

Politicians need a whipping boy and China is currently serving well. The recent fuss over trade is the US and Europe demanding China to respect intellectual property rights. The big lever being used is textile trade. The US and Europe benefit from the low cost production of textiles in China, but we also want to get paid royalties due in other areas. If the Chinese would fairly spend some of their profits on intellectual property, the trade would be good for all.

A list of US intellectual property is long. Companies like QCOM, IBM, and MSFT are "ripped off" millions of times daily. Of course, music, TV and movies are also routinely pirated.

Some years ago, Japan was one of the worst offenders. As pressure built and the years past, Japan realized that it needed the protection of international law for its own intellectual property. As the China economy grows, China will want to enter the business of selling intellectual property at higher margins than are available from knitting socks. It is in China's long-term interest to comply with international law. Of course, it is easy for China to ignore abuses and say it is not their fault.

QCOM receives about $20 in revenue each time about half the cell phones in the world are activated. The China market is huge. One can see why a company like QCOM desires international compliance.

It is important that China obey international law. The smoke screen over the peg of the currencies is just smoke. It is not nearly as politically powerful to say, we are not going to buy under-wear from you until you pay us cell phone royalties.

Those who believe China is taking all the good jobs are misinformed. China has lost about 4 manufacturing jobs for each American manufacturing job lost. Today's world can manufacture more goods using less people. This is called productivity. A century ago, the number of farmers required to grow our food was maybe 60% of the population. Today, about 3% of the US population is farmers. China didn't take all the good farming jobs either.

We live in a wonderful time. Disposable income is high and growing. In the same way that years ago, Americans became two car families, they are now becoming two home families. Trade with China is one of the reasons we can afford two homes. America learned a valuable lesson in the years after Smoot-Hawley. We participate in free trade with many nations. CAFTA needs to be passed. Pressure on China to comply with international law is important but we need to be careful not to kill the goose that is supplying us with golden eggs.