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China trade bill could open new markets for state

Mississippi connection?

Mississippi agriculture and manufacturing are expected to significantly benefit from the new trade bill for China, the world’s most populous country, currently making its way through Congress.

To give you an idea of the economic significance of the Chinese trade legislation, the U.S. Chamber of Commerce alone has spent about $10 million on advertisements advocating free trade with China. That is the chamber’s largest-ever expenditure for a single legislative issue.

“We believe the impact of the legislation will be positive, creating a lot of new export business for the state of Mississippi,” said Jerry McBride, president of the Mississippi Manufacturers Association. “China was our ninth largest export partner in 1999. We export a lot of manufacturing goods and agricultural goods to China, so we believe the China Permanent Normal Trade Relations Bill passed by the House will open up trade for U.S. companies to do more business in China.”

McBride said it is estimated that the bill will reduce tariffs on some agricultural goods from 24% to 9% on imports into China. That is very significant, he said, allowing U.S. companies the ability to sell their products in China at a cheaper, more competitive rate.

Another benefit is that U.S. businesses will be able to import and export without the expense of going through a state-owned middleman company. That not only cuts costs, but reduces delays and red tape.

McBride said the China trade bill is not another NAFTA, and losing jobs to China as a result is not expected.

“It is a one-way bill, I am told, to open up trade relationships with China,” McBride said. “The feeling by the people who voted for it is that it is better to have an open door and line of communication than to have a closed door that is similar to the Cold War relationship we used to have with Russia. China has 1.3 billion people. That’s about a billion more people that we have in the U.S. That is a huge market, and we need to have a good trade relationship with them to sell them products.”

One company that anticipates doing more business in China as a result of the trade bill is Babcock Wilcox in West Point, a subsidiary of McDermott International. Stephen Graf, plant manager for Babcock Wilcox in West Point, said there is tremendous growth in electrical usage in China which provides a good market for boilers manufactured by Babcock Wilcox.

“We have done business with China historically on some major boiler contracts, and we’re hoping what this could lead to some future major contract work providing it has the correct financing,” Graf said. “We have a joint venture company in China that will be picking up a lot of the local business. Right now that company is doing some work for Australia and Egypt out of China.”

Graf said currently Chinese companies can produce boilers at a lower cost than U.S.-based companies because of the wage structure. But some projects in China are financed by the Export-Import Bank. When projects are financed by the Export-Import Bank, U.S. content is required in the project.

“So even though it would cost more to make the components in the U.S., because of the financing we would get the work,” Graf said.

Agriculture in Mississippi may benefit even more than manufacturing. Dr. Juan Batista, executive director of the Agribusiness Institute at Mississippi State University, said there will be opportunities to make money both on imports and exports.

“The trade will occur,” Batista said. “We have shown that time and time again. I’m optimistic something good will happen with the permanent trade relationship, as well as China entering the WTO. I certainly think it will be beneficial to Mississippi farmers.”

Batista predicts that the chicken, catfish and cotton businesses in Mississippi will find new markets in China.

“Asians in general like fish,” Batista said. “Seafood is part of their diet, so that is a plus for catfish growers. As the economy of China grows and evolves, we’re seeing a diet shift from a low- protein diet to higher-protein diet, shifting from grains to fish, chicken, beef, and pork. That’s why I’m bullish on poultry and pork products.”

The Chinese have a lot of textile mills, and it is possible U.S. cotton will be exported to China. Also, since China is emphasizing its ag sector, the country is likely to import fertilizer, seeds and farm equipment.

How much business is done will depend on how well the U.S. competes with other countries equally keen on Chinese trade, and other factors such as the cost of transporting goods. Batista said it will also be important to establish good relationships with buyers in China to provide not only the product, but good service that perpetuates a long-term relationship.

There are some concerns the China trade bill could hurt agribusiness. Cotton, for example, could work either way. China might import more cotton to produce textile exports. Or China might export state-subsidized cotton to the U.S. and countries like India that buy cotton from the U.S., which would unfairly compete with non-subsidized U.S. cotton. But if China enters the World Trade Organization, there will be scrutiny of internal Chinese governmental policies such as ag subsidies.

While it is also possible that cheaper Chinese labor could take away American jobs, Batista said labor is only one factor in production.

“The total package is the issue,” Batista said. “It is more than just a labor issue. We saw that happen with NAFTA, for example. U.S. agriculture was quite concerned about effects of less expensive Mexican labor. But other factors played into decisions such as the quality of water, soil quality, technology and management skills. In all those examples, the U.S. has always stood heads above all others.”

Contact MBJ staff writer Becky Gillette at mullein@datasync.com or (228) 872-3457.


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