Learning a Lesson from China
China has shed its fabled economic isolation and is now a world-class trader that uses its advantages of size, scale and cost to compete in the international marketplace. The consensus is that within a generation or two, China’s economy will equal America’s.

How did China advance so dramatically?

Historically, China has always had vast resources and formidable power — but has only intermittently sought engagement with the wider community of nations. After many years of walling itself from the outside world, China is again welcoming foreign investment and engaging in international trade. While others debate globalization, China has mastered it.

Some are alarmed at the pace of China’s economic expansion and seek to constrain it. We have seen the elements of this strategy in various proposals to erect barriers to U.S. imports of Chinese goods.

Not only are these attempts to inhibit China’s international trading unrealistic, they are potentially damaging to the U.S. economy and job growth. A prosperous China with a rapidly expanding middle class represents one of the most significant opportunities for the United States.

U.S. producers across nearly every industrial sector — from commercial aircraft to medical devices to integrated circuits — recognize China as one of the world’s most promising export markets. Boeing, for example, will soon begin filling an order for 60 new commercial airplanes for China. Limiting U.S.-China trade might actually do more to inhibit job growth in Seattle than in Shanghai.

U.S. agriculture also has a growing stake in China trade policy: Since it joined the WTO in 2001, China has become one of the fastest growing markets for U.S. farm products, with exports tripling from $1.7 billion to $6.1 billion in 2004.

And that’s just the export story. Last year, affiliates of U.S. companies doing business in China sold more than $75 billion worth of products to Chinese consumers and businesses.

Clearly, the U.S. has nothing to gain by adopting a protectionist posture. Rather than attempting to constrain the competition, we should adopt a strategy that will amplify our own strengths. Such a strategy has five elements:

  • First, we must take advantage of the economic opportunities in our own hemisphere. Congressional approval of CAFTA was an important step toward creating more outlets for products made in the U.S. This should be followed by a revitalized effort to complete the Free Trade Area of the Americas, covering 34 nations.
  • Second, we should deepen the Transatlantic Business Dialogue and work towards the creation of a Free Trade Agreement with the European Union. This would stimulate growth and provide an incentive for Western Europe to undertake reforms needed to keep their economies internationally competitive;
  • Third, we must intensify our trade program in Asia in order to benefit from the increasing economic interdependence among the region’s nations. Most importantly, we should build on the success of Indian Prime Minister Manmohan Singh’s recent trip to the U.S. to deepen our trade relationship with India. And the U.S. should accelerate trade negotiations with Southeast Asia, including Vietnam, and open talks with Japan and Korea. China is already moving aggressively to tie neighboring economies to its own.
  • Fourth, we must ensure a successful conclusion to the global negotiations in the World Trade Organization. This will further encourage China and virtually every important trading nation to live up to their WTO commitments and play by the rules of foreign trade;
  • Finally, if we are going to meet this new competitive challenge, we must get our own house in order. The biggest concern of American industry, according to a recent Commerce Department survey, is not foreign imports but domestic policies and problems. Manufacturers cite rising healthcare costs, burdensome taxation, excessive regulation, and inadequate investment in research and education as the prime constraints to long-term competitiveness.

China’s successful economic expansion is creating new wealth, for Chinese citizens and for Americans. As a society founded upon free enterprise, let’s not complain that today’s Chinese businesspeople are becoming too enterprising. We can learn a lesson from China: Isolation is not the answer. Instead, we must do what our nation does best: foster innovation, encourage entrepreneurship and boost productivity. That is how America will prosper.

Sy Sternberg is chairman and chief executive officer of New York Life Insurance Company. This opinion was first published in The Wall Street Journal on August 9, 2005.