WASHINGTON-The United States and China are on the verge of a trade war that could hurt the wireless telecommunications industry’s ability to expand into one of the world’s fastest growing-and potentially one of its biggest-markets.
Acting U.S. Trade Representative Charlene Barshefsky last week said $2 billion worth of tariffs would be imposed on cellular telephones and a host of other Chinese products on June 17 unless China adheres to a 1995 intellectual property rights accord.
“We do not take the move to retaliation lightly,” said Barshefsky, dealing with her first major trade dispute since taking over at USTR in the aftermath of former Commerce Secretary Ron Brown’s death and the move of former USTR head Mickey Kantor to the Department of Commerce.
China responded swiftly by threatening to slap punitive tariffs United States built pagers, wireless telephones and other telecommunications equipment, with the Ministry of Foreign Trade and Economic Cooperation saying that in recognition of its own laws and “with a view to safeguarding state sovereignty and national dignity, China shall have no other option but to take corresponding counter-retaliation measures.”
“We welcome foreign products into our markets,” said Barshefsky, “but we insist that our products be treated fairly overseas. When other countries do not live up to their obligations, we will take action.”
Industry reaction was low-key and measured, as U.S. telecom business interests sought to display support for the Clinton administration while indirectly signaling fear about a U.S.-China trade war.
“We’re unable to estimate what it means to us without further information on the Chinese sanctions,” said Tim Kellogg, a spokesman for Motorola Inc. “We hope the U.S. and China can resolve the dispute before June 17.”
Motorola has a major presence in China, selling cellular phones, pagers, radio communications systems and semiconductor components and currently employing 7,000 people. That number is expected to double by 2000. The Schaumburg, Ill., firm opened a manufacturing research center in Beijing in December 1995 and has a production plant in Tianjin. In addition to its headquarters in Beijing, Motorola has branch offices in China in Shanghai, Guangzhou, Tianjin, Harbin, Nanjing and Chengdu, and plans sales and service offices in 20 more cities. But sanctions threatened by China could stifle that effort.
Indeed, with more than one billion people and limited telecommunications infrastructure, the emerging Chinese market represents a huge opportunity for U.S. wireless businesses and vice versa.
The U.S. imported more than $91 million worth of cellular telephones from China in 1995. If sanctions are imposed the cost of those products in this country will increase.
U.S. exports of wireless products would suffer as well. Paging, wireless telephones and other radio communications equipment were sold to China in recent years that represent hundreds of millions of dollars in sales to American firms.
Moreover, China has threatened to block the establishment of U.S. business offices in that country.
The Telecommunications Industry Association, which represents American equipment manufacturers, said it backs the White House. But President Matthew Flanigan said the trade group “also recognizes the importance of maintaining China as a trading partner and the significant effect of trade sanctions on the U.S. telecommunications industry.”
Gary Shapiro, president of the Consumer Electronics Manufacturers Association, voiced similar sentiments but was more direct about the potential fallout.
“Today’s announcement targeting a number of consumer electronics products is a retaliatory measure that will dramatically hurt consumers, the U.S.’s open, free trade market with China and a number of small and mid-sized U.S. consumer electronics companies.”
Complicating and perhaps even driving the issue to some extent is presidential election politics. President Clinton may want to show the GOP-led Congress he is tough with China in hopes of securing support for renewing China’s most favored nation trade status.
The trade spat is further complicated by other sensitive issues, such as human rights and Chinese nuclear arms sales, that could complicate overall U.S.-Sino relations.
Yet, if history is any indicator, the two countries may simply posture in the days and weeks ahead, and then reach a pact at the 11th hour.
“Our action today should come as no surprise to China,” said Barshefsky. “We have given China every reasonable opportunity-including eight trips to Beijing and the provinces and more than 30 senior-level consultations with the Chinese-to come into compliance with its 1995 commitments.”
