Does It Matter China Made the U.S. Olympic Uniforms?

In a perfect world, here’s what Sen. Harry Reid and Rep. John Boehner might have said when confronted last week with the revelation that China stitches together U.S. Olympic uniforms:

“Small potatoes. Call us back after we’ve fixed the deficit, the economy, Iran, and our real problems with China.”

But no such luck. Democrat Reid said we should “burn” the clothes. Republican Boehner said, “They should have known better.” Several senators this week spent their time, and the public’s money, introducing the “Team USA Made in America Act,” which would require that future Olympic uniforms be made—guess where.

Election seasons often bend sensibility, and this year is no different. Populism gets votes. It also distracts from tackling the big China issues that actually matter to U.S. business: protection of intellectual-property rights, market access, forced transfer of U.S. technology to China, and the ability of China’s state-owned enterprises to crush competitors. These days that agenda is largely on the back burner.

Says an executive with a U.S. manufacturer that has operations in China: “The comments reflect either a lack of understanding of comparative advantage and how trade works (the Chinese are really good at producing low-cost uniforms, the U.S. is really good at innovative technology and advanced manufacturing—which would you rather be?), or cynical politics. More likely both.” He doesn’t want to be named and get his company in trouble with the politicians.

It’s “grandstanding,” says another manager with a tech multinational. “There are far more important bilateral business and trade issues for both countries.”

The flap over the uniforms has a lot to do with America’s fraught relations with China—a sense that the U.S. is losing the race to this commercial juggernaut. Ask the average man on the street what percentage of what we buy in the U.S. is made in China—including those Olympic uniforms—and you’ll probably get estimates well into the double digits.

And yet researchers at the Federal Reserve Bank of San Francisco calculate that in 2010 goods labeled “Made in China” accounted for just 2.7% of U.S. personal-consumption expenditures on goods and services—all the things we buy in a given year, from cars to clothing to health care. (Services account for about two-thirds of our spending and are chiefly produced locally.)

U.S. businesses transport, sell and market those Chinese goods. Strip that value out, and the percentage attributed to the actual cost of Chinese imports drops to just 1.2%. Products that are made in America also sometimes include made-in-China components. But when the researchers added those components into their calculations, the final figure inched up to just 1.9%.

“Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed,” the researchers said in their report. “The vast majority of goods and services sold in the U.S. is produced here.”

Ralph Lauren, which designed the U.S. Olympic uniforms, won’t say what factory in China has the work. Kersten Zhang in the Journal’s Beijing bureau says one company making clothes for Ralph Lauren is Hong Kong-based Luen Thai, which has operations in southern China. Just this one company makes millions of garments and accessories a year for several American and global retailers.

China can clearly make clothes and Olympic uniforms more cheaply than we do in the U.S. That said, Ralph Lauren used employees in America to design the uniforms. And if the San Francisco Fed’s calculations are correct, more than half of the value of any public sale in the U.S. of the made-in-China clothes will flow to American companies.

“Across the business community there’s a recognition that we need to talk about trade in a more sophisticated way—that global value chains can’t be boiled down to three words: ‘Made in China’ or ‘Made in America,'” says John Murphy of the U.S. Chamber of Commerce.

“I think the debate reflects the current economic and unemployment concerns” in the U.S., adds John Frisbie, head of the U.S.-China Business Council.

Castigating foreigners during election cycles and economic downturns is familiar sport in America. Bill Clinton famously campaigned against the “butchers of Beijing” when he ran for president. But once elected he championed China’s entry into the World Trade Organization.

We’re seeing this dynamic again now. Mitt Romney has a “Confront China” policy and says he’ll declare China a currency manipulator if he’s elected president. Barack Obama recently announced tariffs on certain Chinese goods. Meanwhile, there’s little movement on the more complex issues.

“The relationship at this point is a bit stalled,” says Charlene Barshefsky, the chief U.S. trade negotiator in the Clinton administration and now in the trade practice at WilmerHale. “On the trade side there isn’t an enormous amount of genuine activity going on.”That will change after the U.S. elections and the leadership transition now under way in China, she believes. “Both countries will go back to trying to find elements over which they can cooperate. That’s been the pattern over the last 30 years.”

This assumes, of course, that America can get past the critical issue of who should sew our Olympic duds.

Write to John Bussey at john.bussey@wsj.com and follow @johncbussey on Twitter.

[Source: The Wall Street Journal]

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