Assistant Editor

LONDON, Ohio — Despite numerous reports of security issues with imported goods from China, an Ohio State University international trade economist said the United States will continue to import food and consumer products from China.

However, there is a possibility that Congress could place trade restrictions or barriers on imported Chinese goods, according to Ian Sheldon, Andersons professor with the Department of Agricultural, Environmental and Development Economics in the College of Food, Agricultural and Environmental Sciences at OSU.

“The atmosphere is very protectionist in Congress right now,” said Sheldon, who spoke during a session at the Farm Science Review in central Ohio on Sept. 18. “What they need to be focusing on is regulating free-trade with Southeast Asia rather than the WTO agreement with China.”

Sheldon said that Congress has discussed imposing import tariffs on Chinese goods aimed at reducing the U.S. bilateral trade deficit with China, which currently accounts for 30 percent of the $800 billion deficit.

“There has been quite a bit of noise in Congress the last couple years about China’s economic position in the world. It is on the cusp of becoming the third-largest economy in the world and the second-largest trading country in the world. China’s gross domestic product has been growing an average of 10 percent every year since 1978, which is very large for a developing country,” said Sheldon. “In recent years, many politicians believe that China has been partly able to achieve this because it is violating International Monetary Fund policies by deliberately undervaluing its currency. But trade barriers to solve this issue are not a good idea.”

Headquartered in Washington, D.C., the International Monetary Fund is an international organization that oversees the global financial system by observing exchange rates and balance of payments, as well as offering financial assistance.

Barriers on Chinese goods

Recently, the Wall Street Journal published a petition signed by more than 1,000 economists expressing concerns about the possibility that Congress will enact protectionist trade policies against China. Economists from across the country presented the argument that imposing tariffs on China will increase “the possibility of a futile and harmful trade war. American consumers and businesses would pay the price for this senseless war through higher prices, worse jobs and reduced economic growth.”

Sheldon said he shares the views of many other economists that enacting import tariffs will only hurt the U.S. economy and could even send the country into a recession.

“Protection through Congress against China is a foolish way of solving a complex problem,” he added. “It is counterproductive and all that protectionism would achieve is to generate inflation in the United States, which would likely mean a rise in interest rates, with the potential for a recession.”

Sheldon recommended that Congress encourage broader U.S. and Chinese globally economic policies including the appreciation of China’s currency and the rebalancing of its economic growth from one based on exports and investment to one based on consumer consumption.

“China will begin to shift from an investment-focused economy to one based more squarely on consumption,” he said. “China doesn’t have a good healthcare program or education system. For a long time, they have done a good job of saving their money, nearly 50 percent of their income in fact. Now, they’re trying to rebalance their economy from savings and investment to a more consumer-oriented economy.”

However, China is not the only major world player that could benefit from an economic makeover. Sheldon said the United States should take another look at its own situation.

“The U.S. is a borrower and China is a lender. There’s something wrong when a developing country is lending to a developed country. It should be the other way around,” said Sheldon. “We have a negative savings rate in this country. We should start saving more and spending less. This in turn would help reduce the U.S. trade deficit.”

While battling to rebalance both economies, the global community continues to face security issues with recently imported goods from China including Mattel toys with high amounts of lead content and tainted seafood.

“China is a major exporter of food, seafood and textiles, they have made a tremendous commitment to solve some of their economic issues and export problems in the last few months,” he declared. “China is especially worried about food security issues,” he said, mentioning that China is among the top ten importers of vegetables.

“We’re not going to stop importing Chinese goods,” he confirmed. “The question is if, and what kind of trade barriers will Congress put on China.”

This farm news was published in the Sept. 26, 2007 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.