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Trade tensions worry high tech
VALLEY FIRMS NERVOUS AS DEMOCRATS TACKLE GLOBALIZATION ISSUES
By John Boudreau and Frank Davies
Article Launched: 03/02/2007 01:56:22 AM PST
The Democratic takeover of Congress is causing a shift in trade winds, and few places have more at stake than Silicon Valley.
Democrats, who complain they were shut out of meaningful consultation on trade issues during the past six years, are pushing for better labor and environmental standards with trade deals.
Democrats are forcing the Bush administration to file a complaint against China at the World Trade Organization over tax subsidies for exports and are calling for increased pressure on China to revalue its currency, which they say gives it an unfair trade advantage. They also are expected to demand tougher trade terms with South Korea. And they have signaled a desire to rein in President Bush's ability to independently negotiate new agreements.
They are responding to voters' alarm over losing jobs as manufacturers relocate operations to countries that have lower costs and substandard labor and environmental regulations. And many Americans are unnerved by the burgeoning trade deficit, which reached a record-shattering $764 billion in 2006. Voters often blame globalization for the loss of wage security, health coverage and pension benefits, and are pressuring politicians to put a brake on trade agreements they deem counter to U.S. interests.
Silicon Valley executives, while welcoming action against foreign tariffs, intellectual property violations and China's undervalued currency, worry that increased pressure from the United States could lead to retaliation and even trade wars that could stifle the growth of the valley's tech giants.
Rafiq Dossani, a senior research scholar at Stanford University who studies the valley's role in the global economy, says trade tensions pose a major threat.
"I'm sure it would be quite a disaster for Silicon Valley," he said. "Silicon Valley is very competitive. It is selling products not manufactured elsewhere. It can charge whatever price the market will bear."
Silicon Valley's ties to the global economy were ominously underscored earlier this week when a plunge in China's stocks sent a shudder through global markets that hammered the shares of the valley's big tech companies.
Silicon Valley is "one of the most, if not the most, export-oriented economies" in the nation, observed Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. "We are tied to foreign trade. That is one of the reasons we were able to do well last year, and will do well this year and next year, despite a slowing in the U.S."
The region views globalization much differently than many traditional manufacturers and farming sectors, which often see their industries undercut by lower-priced overseas competitors. While tech companies can be hurt by the policies of other countries, such as their failure to crack down on tech piracy, they gain from setting up overseas plants in lower-cost regions.
They also locate offices overseas to help gain entry into foreign markets. That means companies with operations in China, for instance, benefit from the communist government's policy of preventing its currency from rising, said Clyde Prestowitz, author of "Three Billion New Capitalists: The Great Shift of Wealth and Power to the East," and a member of Intel's policy advisory committee.
Congressional Democrats are considering punitive legislation directed at China because of its alleged currency manipulations and disregard for anti-piracy protections. That could help some U.S. companies but could hurt the valley's tech giants doing business in China.
"The spillover effect is hard to quantify, but it doesn't help," said Frederick Mayer, a Duke University professor and trade expert who worked on the North American Free Trade Agreement as a staffer for Sen. Bill Bradley in the 1990s.
U.S. trade relations with South Korea also could get bumpy. Current negotiations for a free-trade deal with that Asian tiger economy could be derailed by U.S. demands that Korea lower trade barriers that block the sale of U.S. autos and other goods.
"We favor a trade deal with Korea because it could mean better access for IT products there, but it could be held up by auto and pharmaceutical issues," said Rob Mulligan, senior vice president of AeA, which represents electronics companies.
The Korea negotiations illustrate how trade has become a hot political issue. Yet, it remains unclear how hard Democrats will push for trade reform. In November, 90 House Democrats, including Speaker Nancy Pelosi, voted for a trade deal with Vietnam, and 94 opposed it. The agreement passed 228-161.
"Democrats are not unified, and somehow they need to reach for a progressive trade policy that's feasible - one that other countries can agree to - and that's very difficult," Duke's Mayer said.
Nonetheless, many Democratic leaders have called for "fair trade" rather than free trade, a code phrase for trade negotiations that ensure a "level playing field." That includes blocking access to the U.S. market for goods made overseas in plants where workers toil in poor conditions and receive substandard wages. Fair-trade advocates also call for retaliation against countries with unfair barriers to U.S. exports.
John Edwards, a Democratic presidential candidate, called on the Bush administration to shut down trade talks with Korea until that country "proves its willingness to open their market to American autos and other products."
In a December Washington Post opinion piece, Sen. Byron Dorgan, D-N.D., and Rep. Sherrod Brown, D-Ohio, wrote: "We must insist that all trade agreements have labor, environmental and other protections so that American workers can compete on a level playing field. The American market is the most desirable in the world. Every country wants access to it. That gives us a great deal of leverage, if only we'd use it. Barriers to U.S. products overseas should not be tolerated."
Many valley execs support at least some of the criticisms of current trade policies. Tech companies in the valley are willing to embrace stricter labor and environmental conditions for foreign workers, said Gary Fazzino, Hewlett-Packard's vice president of government policy.
"I'm very much in favor of free trade. I'm equally in favor that free trade should be balanced with programs for workers who lose their jobs" in the United States, said John Dean, the former chief executive of Silicon Valley Bank who is now managing partner of Startup Capital Ventures, which invests in companies in the United States and China. "That's what has been missing over the last couple of years."
Another trade tug-of-war that will be closely watched by tech companies is expected in coming months as Congress debates whether to renew President Bush's Trade Promotion Authority, otherwise known as "fast track," which allows the administration to negotiate trade deals and then force Congress to accept or reject an agreement without changing it.
That authority expires June 30 if Congress takes no action. Susan Schwab, U.S. trade representative, will push hard for renewal, but many observers are pessimistic.
Companies such as Hewlett-Packard are aggressively pushing for presidential fast-track authority.
"In terms of bilateral free-trade agreements or regional free-trade agreements, the ongoing assumption is, no other trade partner would negotiate with us unless the president has that kind of negotiating authority," said David Isaacs, HP's director of government and public policy.