Wealth Creation in U.S.-China Subnational Relations: The Importance for Business

By: Ben Leffel

All business occurs at the local level. The key to understanding the significant impact subnational U.S.-China relations have on creating business opportunities is recognizing the specializations that occur at the local level. These specializations have the potential to maximize wealth creation opportunities between the massive markets in the U.S. and China. Key areas where the importance of these specializations can be observed are in the respective, and overlapping, realms of U.S. local elected officials and of U.S. exporters.

U.S. Elected Local Officials

Growth of U.S.-China trade brings with it complexities, such as trade policy, that can be hazardous for local economies. U.S. elected local officials seeking to create jobs in their jurisdiction must, among other measures, do what they can to ensure that trade policies implemented at the national level do not negatively impact their community.

There is no shortage of national-level action towards China that can pose an economic threat at the local level. One thinks of Senator Sherrod Brown’s (D-OH) twice-failed introduction of the Currency Exchange Rate Oversight Reform Act, which sought for the U.S. Treasury to label China a currency manipulator. Had this piece of legislation passed and the Treasury acted on it, the Chinese would likely have retaliated in the form of imposing trade barriers against the U.S., in light of which U.S. citizens would likely face significantly higher prices for products imported from China, as well as difficulties exporting to China.

Recognizing that U.S. local elected officials must have an effective platform to advocate against such national-level action, the Colorado-based nonprofit, U.S.-China Cooperative Association of Elected Local Officials (USCCAELO) was recently formed.  Its goal is to serve as a local-national conduit for local officials regarding China-related matters, as well as a catalyst for intergovernmental cooperation between U.S. elected local officials and Chinese counterparts.

One such instance for which USCCAELO could do local elected officials a great service in terms of national advocacy is in the solar photovoltaics (PV) industry. Crystalline silicon PV products are used as key inputs in the solar panel production process, and China produces a great deal more of these materials than the U.S. and at a lower cost.

U.S.-based solar power systems producers, such as SolarWorld, have been struggling to compete with comparatively inexpensive Chinese imports of these PV materials. In February of this year, SolarWorld filed a petition to the International Trade Commission (ITC) which may result in the imposition of anti-dumping duties against Chinese imports. At the local level, this means less American jobs created by the manufacture and installation of solar power systems.  Specifically, if the ITC investigation results in imposing duties on Chinese imports of these PV inputs, U.S. buyers will be forced to buy higher-priced PV inputs—e.g., from sellers such as SolarWorld. This would prevent U.S. buyers who otherwise would use these materials from creating jobs associated with the resulting solar power systems.

U.S. elected local officials seeking to retain the job creation potential that comes with the availability of inexpensive Chinese PV materials should communicate their disapproval of this action to Washington. Arguably, when local officials speak with a collective voice, the more effective they are in preventing the imposition of duties on Chinese exporters. The USCCAELO is designed to provide just such a platform on China-related issues. The potential for USCCAELO to do so on the PV issue presents an immediate impetus for local officials to consider using it.

 Exporters

U.S. state-level economic development agencies have, in the past few decades, opened Foreign Trade Offices (FTOs) in large numbers in China or have contracted to trade consultancies such as The China Hand Consulting Co. to achieve greater local access to Chinese importers.  As of 2012, 28 U.S. states had a total of 32 state-level trade representative offices in China. These subnational offices allow local small-to-medium-size enterprises (SMEs) to successfully export to a market that many SMEs would not have the knowledge or capability to do on their own.

Approximately 95% of the world’s consumers and 70% of global purchasing power are outside of U.S. borders. This underlies a constant domestic demand for export assistance, particularly toward China, the world’s fastest growing market. Though the China trade offices of the U.S. Departments of Commerce and Agriculture provide strong export assistance for U.S. SMEs, these federal offices are stretched thin and alone cannot supply this domestic demand for assistance. It is in this area that U.S. state-level FTOs are carving out a competitive advantage for their local exporters through the provision of their own effective export assistance.

The most effective China-specific export assistance agencies are effectively marketing their services to local SMEs, connecting with key Chinese industry associations and distributors and providing informed legal advice on intellectual property protection in China. Ultimately, these best practices result in the reduction of the time, cost, and risks associated with entering the Chinese market.

The North Carolina Department of Agriculture & Consumer Services’ (NCDA & CS) China office opened and began providing assistance to several local agricultural industries in 2009, and facilitated sustained export growth for many of these industries as shown below in Figure 1. It was the NCDA & CS China office’s development of a specialized network focused on market entry that allowed it to directly bring industry-specific opportunities home to its local companies. The continued development and use of such specialization in other U.S. states is allowing more SMEs to successfully export to China who otherwise would not have, and at the collective level are maximizing local wealth creation opportunities with the China market.

 Figure 1. North Carolina China Exports in Eight Agricultural Industries, 2006-2012