THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, February 13, 1995 TAG: 9502100465
SECTION: BUSINESS WEEKLY PAGE: 10 EDITION: FINAL
TYPE: Cover Story
SOURCE: BY STEPHANIE STOUGHTON, BUSINESS WEEKLY
LENGTH: Long : 148 lines
From Lillian Vernon's corporate offices in New York to the Scat bicycle shop in Portsmouth, officials are paying close attention to trade tensions between the United States and China.
They have good reason.
Both companies stand to lose in the brewing East-West trade war. That's because many of the products they sell come from China, and they're on the U.S. hit list.
The United States is threatening to place 100 percent tariffs on $1 billion worth of Chinese products. The tariffs, which would take effect Feb. 26, would be placed on everything from bicycles to surfboards.
China said it would retaliate with 100 percent tariffs on U.S.-made cigarettes, alcohol and compact disks. It then suspended negotiations with Detroit's Big Three automakers.
So, what's the problem?
The fight has its origins in Chinese piracy of copyrighted U.S. music, movies and computer software. But the war could affect more than those industries.
While some trade experts say sanctions would have a limited impact on U.S. companies and investors, that doesn't seem to comfort business officials who have strong ties to China.
Many U.S. companies, including some in Virginia, sell Chinese products. One obvious example in Hampton Roads is China Market U.S.A., whose owners plunked down $6 million for a sprawling center in Portsmouth, envisioning profits from booming U.S.-China trade.
If the owners can't get their products here, they can't profit. And neither will the city of Portsmouth.
Other companies have heavy investments in the Asian nation or hope to lure Chinese companies to the United States. Even those business relations could sour if trade negotiations fail.
In Virginia Beach, workers at Lillian Vernon's sprawling distribution center and warehouse sew, prepare and pack thousands of items, many of them made in China.
``We do a substantial amount of business in China,'' said David Hochberg, a spokesman for the New York-based catalog retailer. ``It's a very broad assortment: napkins, baskets, textiles and more.''
Any sanctions against China would hurt Lillian for a short period, Hochberg said. It wouldn't be a problem in the long haul because the company would turn to other suppliers in Taiwan, the Philippines and Indonesia.
Lillian Vernon tries to protect itself from trade wars by keeping a list of reliable secondary manufacturers, he said.
But it's not always easy to find reliable suppliers abroad.
Discount variety stores like Norfolk-based Dollar Tree Inc. have a tough time finding quality products, especially because the company is selling its products for a buck apiece.
Dollar Tree gets 39 percent of its merchandise from abroad, primarily Chinese products that flow through Hong Kong and Taiwan before reaching Norfolk.
If that flow is interrupted or extra charges are tacked on, the company's bottom line could be affected, Dollar Tree said in Securities and Exchange Commission documents.
``Moreover, products from alternative sources may be of lesser quality and/or more expensive than those currently purchased by the company,'' a document says.
The thought of paying extra for Chinese-made products angers David Holland, manager of Scat Bikes in the Churchland section of Portsmouth. If customers want bikes made in China, they should be able to get them, he said.
Plus, he asked, why are bicycles on the list anyway?
Bicycles wound up on the list because U.S. manufacturers believe their Chinese counterparts have an unfair edge, trade experts say.
That doesn't ring true, Holland said. In his experience, U.S. manufacturers generally do not make very good bikes. The Chinese, however, make a number of good ones, he said.
``Many of the low-end bikes are made in the U.S.,'' Holland said. ``They are the ones that want to have more trade restrictions.''
If Scat Bikes has to pay more for Chinese bikes, that cost may be passed on to the customers. That, in turn, would hurt both the business and the customer.
``These trade sanctions are designed to protect you, but they really don't,'' Holland said. ``It's just an argument for bigger government.''
Experts in U.S.-China trade think the sanctions will actually benefit many domestic industries, including textile and bike manufacturers.
It would harm only a few, mainly those who sell intellectual property to China or exclusively use Chinese products like rubber soles to manufacture merchandise.
``There's always winners and losers,'' said Don Spangler, general manager of Richmond-based WWT Group Inc., which helps Virginia companies export to China.
Others that might be hurt to some extent: companies with manufacturing plants in China, businesses planning large investments in China and firms that export mainly to the Asian country, Spangler said.
``What happens depends on how firm the U.S. government wants to be in this,'' he said.
``All of these sanctions are tied to China's desire to join the World Trade Association,'' Spangler said. ``And if China can't join, it would retaliate at countries they perceive to be their major roadblocks. That could actually lead to bans on merchandise and companies that are trying to invest in China.''
There are several reasons why Spangler thinks the trade war won't happen.
First, China has gone so far toward a free-market system that many of its provinces are exercising more control than the central market, he said.
``If (U.S.-made products) are considered vital to their continued growth, they can get waivers for the products,'' Spangler said.
Secondly, China hasn't overreacted to the U.S. threats, he said.
``Neither country is talking about across-the-board tariffs,'' he said. ``They are being very careful where they target those tariffs.''
Mark Wawner, acting economic development director for Virginia Beach, thinks the U.S.-China tensions won't spoil Chinese investors' plans to build a $10 million warehouse and distribution center in the city this spring.
Still, he's keeping an eye on the negotiations.
``We need to be careful,'' Wawner said.
Lillian Vernon, the catalog retailer, isn't content to watch the negotiations.
Over the years, the company has endured several trade scares. So in addition to locating secondary suppliers, the firm has developed contacts in the federal government, who can tell the company whether it really should be worried.
This time, Lillian Vernon does not seem overly concerned.
``Don't forget: The U.S. has threatened trade wars in the past,'' said spokesman Hochberg. ``It hasn't always been smooth. This is not the first time, and it certainly won't be the last.'' ILLUSTRATION: CHARLIE MEADS/Staff
Workers at Lillian Vernon pack wood photo boxes made in China at the
company's distribution center in Virginia Beach.
CHARLIE MEADS/Staff
Workers at Lillian Vernon's distribution center pack, prepare and
sew thousands of items, many of which are made in China.
JIM WALKER/Staff
David Holland, manager of Scat Bikes in Portsmouth, questions the
motives behind the U.S. tariffs. "These trade sanctions are designed
to protect you, but they really don't," he says. "It's just an
argument for bigger government."
Staff [Chart]
U.S. CHINA TRADE
In millions of dollars
SOURCE: U.S. Census Bureau
[For a copy of the chart, see microfilm for this date.]
KEYWORDS: CHINA TRADE by CNB