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For many of the regional economies that together form the U.S. economy, China and India are not economic competitors, but growth markets for U.S. goods and services, Dennis Unkovic explains.

The economists and pundits are dead wrong about China and India.
Virtually all of the economic gurus who chime in on the question paint in broad strokes when they talk about what growing Asian giants are doing to the U.S. economy. They all tend to say one of two things, and the ones known for being comprehensive say both:

• The negative impact of China’s strengths in manufacturing and its thirst for natural resources has already roiled the U.S. economy.

• A growing threat is posed by India’s highly educated workforce to America’s knowledge-based industries like software development, bio- and medical technology, and Internet-dependent businesses such as systems integration and back-office banking transactions.

The problem with these views is that they are so general that neither one really applies to most parts of the U.S. economy. And the reason they don’t apply is that the U.S. economy is a mythical beast. Simply put, there is no U.S. economy. Instead, we have a collection of 15 or 18 loosely interacting regional economies that are mostly built around large metropolitan areas.

For many of the regional economies that together form what we call the U.S. economy, China and India are not economic competitors, but growth markets for U.S. goods and services, potential joint venture partners in globalized industrial sectors like metals production, and, in the case of China, sources of capital.

True enough, China’s cost advantages in manufacturing have already devastated some U.S. regions. As the biggest urban center of the rust belt, Chicago has suffered through the onslaught of Chinese manufacturing, especially toolmakers and auto parts suppliers. China has also inflicted its damage to Pittsburgh’s traditional metals and industrial sectors.

But to many cities and regions, China is a great market or trading partner. For example, the Chinese consume 21 servings per capita each year of the product of one of Atlanta’s biggest companies, Coca-Cola. Houston has almost 40% of the U.S. capacity for producing basic chemicals and the sixth largest port in the world. And while that makes China a competitor for raw materials, it is also a potential partner for joint development in the rapidly globalizing energy and chemical sectors.

Los Angeles best exemplifies the idea that China represents a two-edged sword to our regional economies. L.A. is now the largest manufacturing center in the U.S. with about a half million workers manufacturing steel products, apparel, furniture, electronic products and food products, all vulnerable to China’s growing manufacturing clout. But L.A. also handles the most goods and tonnage of any U.S. port. And don’t forget that China’s burgeoning consumer markets are a natural source of growth for L.A.’s entertainment industry.

There is also good and bad about the impact of India’s high technology businesses on U.S. regional economies. The most obvious victim is Silicon Valley, where there are more than 7,000 technology companies. China has already had whatever impact it is going to have on Silicon Valley’s computer hardware and equipment sectors. In the future, India will give Silicon Valley a run for its money, competing in applications software, biotech and Internet technology.

It also goes further than Silicon Valley. India may stand as a threat to the further development of Atlanta’s software and high tech industries. The high tech and biotech companies of the Research Triangle and the backroom operations in Charlotte’s national and international banking sectors face a grave threat from India’s engineering and research might. India’s phalanx of qualified software developers and programmers represent a threat to Seattle’s high technology companies, although perhaps not to Microsoft, whose operating system still holds an entrenched position worldwide. India could also hurt Seattle’s growing medical technology and biotechnology industries.

India’s growth may end up helping some cities and regions. Pittsburgh has lots of connections with India because so many Indians have attended college or graduate school there. Because the emerging industries in Pittsburgh are the very ones gaining traction in India (technology- and knowledge-based services, biotechnology, medicine and software development) Pittsburgh may ride India’s coattails to growth. And at least one enormous pillar of the Seattle economy will be happy to see India’s economy grow, and Chinas’ for that matter, too: China and India are both excellent customers for Seattle’s largest employer, Boeing.

Some regions will see very little impact from either China or India. For example, Denver’s economy still depends to a large extent on being a distribution and government center for the Rocky Mountain region. Neither Asian giant has an appreciable impact on the current Denver economy, although India may eventually prove to be a major competitor as Denver strives to fulfill projections that it will soon become a world-class high tech and research hub.

Once near bankrupt, New York now seems essential to the world economy no matter which countries are ascendant. It is the financial, media and publishing center of the world. It has a large and growing tourism, fashion and professional services sectors, a well-educated workforce and many research institutions. New York’s Internet and high tech industries are expanding. New York has too many strengths not to profit from growth in China, India or anywhere else in the world, for that matter.

All these examples suggest that it is foolish indeed to make any sweeping statement about the impact of India or China on the U.S. economy. Just as with the growth of technology industries in the 1980s and 1990s of the last century and the growth of manufacturing industries in the 1980s and 1990s of the century before that, with the growth of India and China, some regions will thrive and others will suffer.

Over a more than 30-year career, international attorney Dennis Unkovic, du@muslaw.com, of Pittsburgh-based Meyer, Unkovic & Scott LLP, has helped dozens of U.S. companies establish operations in Asia, and dozens of Asian companies establish operations in North America. He has written four books and more than 120 articles on international business topics, and lectures frequently at business associations and universities worldwide on a variety of subjects related to international trade.

Volume:
9
Issue:
5
Year:
2007


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