Chinese firms marketing goods and services in the United States focus on customers and the cities they live in, rather than Congress, the President, or the Department of Commerce.
Both Americans and foreign businesses benefit from known and predictable legal institutions protecting property rights and contracts. Both the Chinese and U.S. central governments disrupt and distort trade relations between U.S. and Chinese firms and consumers.
U.S. firms investing in and marketing goods and services in China work with provincial and cities leaders and with local businesses. If local government officials have a reputation for corruption or incompetence, international businesses invest instead in other regions with better governance.
Similarly, economic growth is strongest in those U.S. cities and states with less corrupt and heavy-handed government.
Though many politicians and pundits blame China for America’s slow recovery since the 2008-2009 “Great Recession,” Texas and other states with lower taxes and lighter regulation have flourished. It is the high-tax states where the recovery has been unusually slow.
Texas, Florida, and other states across the south have seen steady economic growth, seemingly unhampered by imports from China. (This April 29, 2015 Brookings Institution article and paper looks at recent research on the influence of tax policy and state-level economic growth.)
In “The Texas Miracle Isn’t All About Oil” (The Federalist, June 9, 2016), Vance Ginn writes:
Since the last national recession started in December 2007, Texas has created 36 percent of all civilian jobs added nationwide in a state with less than 10 percent of the country’s population.
Just as Dallas/Ft. Worth, Houston, Austin, and San Antonio lead the robust Texas economy (see “Fastest growing U.S. cities: Texas is king“), so in China it is dynamic major cities, not the central government, that are engaging the world economy.
In “China’s Key Cities: From Local Places to Global Players” (December 1, 2015), Xiangming Chen notes Shanghai (population estimate: 24 million!) is “the country’s financial and trade centre, largest port… and gateway to China’s huge domestic market.” Xiangming continues:
Besides Shanghai, a variety of other cities have become more important for China, and the world economy, for that matter. A number of these cities are well known for their significant historic and contemporary economic and cultural roles such as Guangzhou and Xi’an. Other cities have risen from unknown origins to prominent economic centres like Shenzhen.
In “Globalization Goes National,” (BloombergView, September 15, 2016) economist Tyler Cowen writes:
The Chinese economy has had a tendency to cluster around megacities, such as the Beijing-Tianjen-Hebei, Shanghai-Nanjing, or Guangzhou/Shenzhen/Hong Kong clusters. In the past, a Chinese port might have had better trade connections to Korea or California than to many parts of the Chinese interior. But these days the story in China is the rise and extension of national brands. The internet is bringing the whole country’s economy together through Alibaba, WeChat, and other services that ease the online purchase, shipping, and advertising of goods at the national level.
Cowen argues that as Chinese brands improve, Chinese consumers purchase more locally and this may register as a decrease in globalization:
The more economically integrated China becomes, the more it may retreat from some kinds of global trade. If a Chinese customer can buy a smartphone or pharmaceutical from the domestic market, she may stop looking for foreign imports. That will register statistically as a decline in globalization, but actually it is an increase in efficient economic integration. Some parts of the Chinese economy were prematurely hyper-globalized at the same time domestic economic integration lagged, and now that state of affairs is being remedied.
As people in China continue to prosper, demand for name-brand U.S. goods and services will also continue to grow. Americans might not think of McDonald’s or Pizza Hut as high-end dining, for hundreds of millions of Chinese just joining middle income levels, these American restaurants will long be popular.
By 2022, our research suggests, more than 75 percent of China’s urban consumers will earn 60,000 to 229,000 renminbi ($9,000 to $34,000) a year.
In purchasing-power-parity terms, that range is between the average income of Brazil and Italy. Just 4 percent of urban Chinese households were within it in 2000—but 68 percent were in 2012.
China’s middle class is already bigger than the U.S. middle class (“China has a bigger middle class than America,” (CNN Money, October 14, 2015)
Still, China has a long way to go, and is still both a developed and developing economy. “Here’s What China’s Middle Classes Really Earn — and Spend,” (Bloomberg, March 9, 2016), reports:
China’s average annual wage was 56,360 yuan ($8,655) in 2014, and Goldman Sachs estimates that 387 million rural workers — half the working population — earn about $2,000 a year.
The average Chinese consumer spends $7 a day, according to Goldman Sachs. Food and clothing make up nearly half of all personal spending, with 9.2 percent allocated to recreational activities like travel, dining out, sports and video games. The average American spends $97 a day, 17.3 percent of it on recreation.
Though U.S. politicians often blame Chinese firms for U.S. job losses and income stagnation, and paint China as an opponent of the U.S., Chinese consumers with fast-growing disposable income mean surging sales of international goods and services.
New trade barriers on Chinese goods would not only disrupt global supply chains key to U.S. manufacturing, but would also disrupt demand of U.S. goods and services in China.