China Trade War Business Leaders Back David Dodge s Views on Asian Trade Threat, Predict Increase in Chinese Imports and Foresee Harm to Employment in Canada BDO Dunwoody/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication June 6, 2005 COMPAS Inc. Public Opinion and Customer Research June 6, 2005
1.0 Introduction Canada s CEOs and business leaders support Bank of Canada Governor David Dodge s interpretation of the Asian trade threat and the negative role of rigid exchange rates. The majority of panellists agree with Dodge that continuing imbalances involving China would probably lead the U.S. and Europe to take stronger protectionist action, which could potentially damage world trade. By contrast, business leaders do not support the perspective of Chinese Commerce Minister Bo Xilai. For example, respondents disagree with Bo s view that Europe and the U.S. failed to prove that China s exports were causing any real disruption or harm to their economies. Almost all panellists believe that Canada s trade with China will continue to grow, and most foresee the growth as doing harm to employment in Canada. Canada s CEOs and business leaders anticipate that the Chinese cultural, educational, and political impact on Canada will increase but that Canada s Human Rights influence on China will not experience a corresponding boost. These are some of the key findings from this week s web poll of business leaders and CEOs, sponsored by BDO Dunwoody LLP and the Canadian Chamber of Commerce. 2.0 Dodge Trumps Bo The business panel embraces Bank of Canada Governor David Dodge s views on Asian trade issues but not the views of Chinese Commerce Minister Bo Xilai. An overwhelming majority (88%) agree with Dodge that if the trade imbalances involving China continue, the U.S. and Europe will probably take stronger protectionist action, potentially damaging world trade (see table 1). The majority (74%) also agree that the ability of Asia s economies to flood western markets is attributable to Asia s artificially low and unduly rigid, fixed exchange rate. Most (77%) agree with Governor Dodge that 2
the solution is for Asian countries to allow some flexibility in their currency exchange rates (table 1). Chinese Commerce Minister Bo Xilai elicits little support from the panel. By a factor of nearly 2:1, respondents reject his idea that the West failed to prove that their economies were suffering as a result of Chinise trade practices (table 2). Nor do Canadian CEOs and business leaders see much merit in Minister Bo s view that The EU and the United States should spend more time on the development of high technology Airbus or Boeing airplanes, and advanced modern machinery rather than spending time quarrelling with us on issues like shirts, socks, and trousers. CEOs and business leaders do see some merit in Bo s argument that recent U.S. and European import controls were illegal and a violation of WTO rules (tables 2 and 3). Members of the panel nonetheless believe that Europe and the U.S. needed to impose such controls because Chinese textile exports grew by more than 50% in a year and were too much of a threat to jobs and industries (table 3). Table 1: (Q2) Bank of Canada Governor David Dodge shared some thoughts recently. Using the 7 point scale where 7 means agree a lot and 1, the opposite, please indicate to what extent you agree with him. [RANDOMIZE] The major solution is for Asian countries to let their currencies have some flexibility in their exchange rates. If the trade imbalances involving China continue, the U.S. and Europe will probably take stronger protectionist action and this could damage world trade. Asia s economies are able to flood western markets because Asia s currencies are fixed to the U.S. dollar at an artificially low exchange rate. Mean 7 6 5 4 3 2 1 DNK 5.7 29 26 24 8 3 2 1 8 5.7 26 33 28 6 4 1 1 1 5.5 28 25 14 14 4 5 0 10 3
Table 2: (Q3) Please use a 7 point scale to indicate to what extent you agree with the following thoughts expressed by Chinese Commerce Minister Bo Xilai, where 7 means agree a lot and 1, the opposite. [RANDOMIZE] The recent import controls introduced by Europe and the U.S. were illegal, a violation of WTO rules. Europe and the U.S. failed to prove that China s exports were causing any real disruption or harm to their economies. The EU and the United States should spend more time on the development of high technology Airbus or Boeing airplanes, and advanced modern machinery, said Minister Bo Xilai, rather than spending time quarrelling with us on issues like shirts, socks, and trousers. Mean 7 6 5 4 3 2 1 DNK 4.2 6 15 20 18 9 4 11 18 3.5 3 7 14 15 21 11 13 16 3.3 6 9 16 9 16 19 22 2 4
Table 3: (Q1) As you may know, the European Union and the U.S. have just imposed import controls on textiles from China. Using a 7 point scale where 7 means agree a lot and 1, the opposite, how do you feel about the following opinions? [RANDOMIZE] Europe and the U.S. had to do it because Chinese textile exports grew by more than 50% in a year and were too much of a threat to jobs and industries It was probably a violation of World Trade Organization rules and a threat to world trade stability Mean 7 6 5 4 3 2 1 DNK 4.6 19 15 19 19 9 9 6 6 4.2 9 10 21 19 18 8 7 8 The following verbatims provide an insight into the perspectives of members of the panel: China is not about to do anything with their currency. The U.S. will become more protectionist, and that will have an effect on our trade. It is true that the U.S. and Europe are probably taking actions that are in violation of WTO. However, the U.S. and Europe are only adopting the same tactics as China. China has made a policy of routinely ignoring WTO requirements that they find contrary to their agenda of growth, for example, their lax enforcement of intellectual property protection while enjoying the benefits of WTO membership. Unfortunately, the whole situation undermines the principle of the WTO, and protectionism will result with the attendant tightening of geo-political borders unless the world wakes up, deals with China like the spoiled brat that it is, and sends for a 20-30 year timeout by kicking it out of the WTO and branding it as the rogue nation that it is. 5
New threats [from Asian exports] certainly have some serious negative effects on manufacturing and some service sectors. Protectionism is not the right approach to deal with this issue and in the long run will cause a lot of damage... However, [China s] unfair fixed-exchange policy should not be ignored because it will cost a lot of manufacturing jobs and their future survival. [Canada] should provide exporters with tax and grant incentives to send a] a message to Chinese officials that their unfair practices will not be tolerated at the others' expense. Business in North America is blatantly at a disadvantage with the pegged dollar and cheap labour. We have laws that regulate minimum wages etc. but have to complete against companies that can use cheap labour from other countries. This is a very large threat. 3.0. China Trade Will Grow and Harm Employment in Canada Almost all of the respondents on the business panel (92%) say that trade with China will grow from its current position as the second biggest source of imports for Canada (table 4). Meanwhile, a clear majority (61%) anticipate that Chinese exports will harm employment in Canada, as shown in table 5. Table 4: (Q4) China has become [our] major trading partner for our second biggest source of imports and fourth largest destination for exports even without factoring in Hong Kong. Do you think China s role will Grow a lot 56% Grow somewhat 36 Stay the same 4 Decline somewhat 1 Decline a lot 1 Don t know/refused 2 6
Table 5: (Q8) On balance, will Chinese exports to Canada [ROTATE POLES] % Do a lot of harm for employment in Canada 12 Do some harm 50 Have no net effect 9 Do some good 24 Do a lot of good for employment in Canada 2 Don t know/refused 2 The following verbatims provide a sense of the perspectives held by members of the business panel: There is little doubt that in the short term our economy would suffer as a result of the increased trade with China, primarily in the common sectors of activity. However, in the long term Canada s ability to develop sectors that are different than China will normalise the flow of trade both ways Having focused on China for most of the past two years, I believe it will be the biggest factor in our future development since NAFTA, and likely bigger than NAFTA. China is changing the world economy - some for the good and with some problems. The problem is that Canada thinks that it can continue to operate with the same economic policies, taxation structure and energy policies or lack of them, in the face of this competition. If we do not wake up to this reality, our manufacturing industries will diminish and we will be importing everything we use from China and just selling them raw resources. China will go on expanding its trade and become more and more competitive in all sectors. It is a mistake to believe that technically we will always be in front. Chinese imports are killing manufacturing in our industry and will destroy many others as time passes. Almost everything you pick-up is made in China. Canadian manufacturing and jobs will be lost if 7
things keep up. Canada should impose large duties of 75% or more to keep small manufacturing jobs and employment in Canada. This is done in the U.S. on some products. Canada sits and does nothing, but will bury the dead after factories close and many workers will go into bankruptcy. Canada must act now! Business in North America is blatantly at a disadvantage with the pegged dollar and cheap labour. We have laws that regulate minimum wages etc. but have to complete against companies that can use cheap labour from other countries. This is a very large threat in keeping well balanced industries and marketing in our own co 4.0. Increased China Canada Trade Will Enhance China s Influence on Canada But Not Canada s Influence on China A two-thirds majority of panellists (67%) take the view that the cultural and educational impact of China on Canada will increase, as shown in table 6. The majority also anticipate that Chinese influence on Canadian foreign policy will also grow, as shown in table 7. But, the business panel does not foresee Canadian influence on China growing. Three-quarters (74%) say that Canada s Human Rights influence on China will either remain unchanged or decline a result of closer trade relations, as shown in table 8. 8
Table 6: (Q5) Suppose China s role as our trading partner remains stable or grows. Do you think our educational system and mass media will end up [ROTATE POLES] % Placing a lot more emphasis on Chinese languages and culture 14 Placing somewhat more emphasis 53 No change 30 Placing somewhat less emphasis 0 Placing a lot less emphasis on Chinese languages and culture 1 Don t know/refused 2 Table 7: (Q6) Thinking about Chinese influence over Canadian foreign policy, do you think China will end up exercising [ROTATE POLES] % A lot more influence over Canadian foreign policy than in the past 9 Somewhat more 48 About the same as always 39 Somewhat less 1 A lot less influence over Canadian foreign policy than in the past 0 Don t know/refused 2 9
Table 8: (Q7) As a result of closer trade relations, how much influence will Canada end up exercising over China on matters of human rights and freedom of belief? [ROTATE POLES] % A lot more influence than in the past 1 Somewhat more than in the past 22 About the same as always 65 Somewhat less than in the past 6 A lot less influence than in the past 3 Don t know/refused 2 5.0. Methodology The National Post/COMPAS web-survey of CEOs and leaders of small, medium, and large corporations and among executives of the local and national Chambers of Commerce was conducted June 1-3, 2005. Respondents constitute an essentially handpicked panel with a higher numerical representation of small and medium-sized firms. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of 140 are deemed accurate to within approximately 8.3 percentage points 19 times out of 20. The principal and co-investigator on this study are Conrad Winn, Ph.D and Tamara Gottlieb. 10