How to Trade with China and WIN (and how not to)

Wait- the biggest economy in the world should consult two of the smallest to improve its trade management?

When it comes to China, yes.

A. The Numbers

Let’s start with the numbers:

·      US- 2017 Trade with China (per US Census website): Exports: $130.4 billion; Imports: $505.6 billion. Deficit: $375.2 billion (US trade with China 2017)

·      Australia- 2016-17 Trade with China (A$m billion): Exports: 95.7; Imports 61.5; Surplus 34.2. main export commodities eg., coal

·      (Australia Exports to China growth YOY= 27.8% Imports from China growth YOY=0.0% Australia trade stats 2017)

·      New Zealand- 2016 Trade with China (NZ$ billion): Exports 12.3; Imports 10.5; Surplus 1.8

·      (2017 total trade with China NZ$26.1 billion. Exports of dairy products increased 52% in 2017 NZ trade stats 2017)

So what happened here? Does China need products from Australia and New Zealand more so than those from US? The US is the #1 agricultural importer to China, far more than either AUS or NZ. But you cannot but scratch your head when you see that Australia’s exports to China in 2017 were 73% of those from the US.

BOTTOM LINE: They MADE A DEAL. We didn’t.

B. The Art of  the Deal vs. Transcontinental Chess

President Trump wrote a book entitled, “The Art of the Deal.” And nobody can dispute that he has been successful in business by knowing how to make a deal. But, to me, Australia and New Zealand management of their trade with China looks more like the art of the deal than ours-IF judged only by the result.

So how did they do it? Easier than you might think, and logical too. Both countries have a trade deal with China which lowers tariffs and sets a path for a win-win- New Zealand since 2008, upgraded in 2016, and Australia since 2015.

To my knowledge, the relationship between the US and China has always been adversarial, and no president in the past (until Trump) has had the balls to stand up for US interests OR the smarts to say, hey, China, let’s sit down and explore common interests and come out with win-win (not Trump yet), THEN apply the leverage if China didn’t respond. So China has had an open bar for 20 years, got rich and spoiled on it, and cannot (even more than WILL not) stop the train so easily now without messing with their economy.

In fact, our business relationship with China seems like an amateur game of chess. Latest round: Little Move 1 Trump announces tariffs on China; Little Move 2 China announces tariffs on US; Little Move 3 Little Rocket Man shows up in Beijing. What will be Little Move 4? What it should be is for both countries to sit down, cut the BS and cut a trade deal. There is no doubt that China will not give up its goodies without getting something in return.

C. What Should We Do?

I believe the US has plenty to give in order to get a good deal.

First, US is China’s largest market. No fake news or propaganda can deny that.

Second, there are products that, for better or worse, are not being made in the US anymore and where China has a cost advantage; apparel is one of them, sorry y’all who had dreams of Made in America going back to the good old days. Never.

That does not mean that a viable and vibrant apparel industry cannot exist in the US-it CAN. It just has to be different than it used to be. You are not going to stop mass market clothes made in China and elsewhere from coming; In that area the two countries are codependent. And they are NOT mutually exclusive.

What’s at the core of the stasis in US? Local political interests and ethnocentric rhetoric. Shut them up for the greater good. Change the yahoo attitudes that cling to a Civil War mentality without a shred of business sense. Most important: get some dang HUMILITY.

Lower some duties on those products where we don’t compete anyway. Ask China to lower duties on items they need and that we want to sell more of.

How much difference will this make? IDK. I would love to be part of a government project to initiate and carry out this research. The results might be surprising, but in the least, we would be conducting ourselves like businesspeople rather than bombastic know-it-alls.

(Above is an extract of a lesson taught to my Global Marketing class at FIT)

Dear Macy's-Isn't this a little stupid?

Did you know that Macy's permits ads on its website that can not only provide a platform for competitors, but can clearly promote the same item for less? I didn't know this-because I never shop at macy's online and rarely shop in the store. Below is an example from the Designer Handbags page: I know I don't have the brain trust that Macy's has, but why would you do this? Whatever money Google is paying you to run this page, is it really worth sending customers somewhere else to buy the same item? Why remind YOUR customers that they need not be loyal? Hey Macy's (or anyone else), can you explain how this makes any business sense and how you think it will affect customer loyalty? You make a big deal of the Rewards program for customer loyalty-is this the Reward? Is this how to build (or rebuild) your Brand? OR is this just draining the moat and opening the castle door? If not a good business explanation, the next best thing would be the humility to admit this is stupid-at best.

The Name is Fine China, So Why is there no Chinese Brand? By Yuting Zhang

Guest post by a brilliant merchandiser and critical business thinker. Thanks, Yuting

Recently I planned to buy some dinnerware to make a nicer presentation for my dining table. After doing a lot of research from Replacements.com, I noticed that I didn't see any chinese brand. After searching Google and Baidu (Baidu is the most popular search tool in Chinese language), to find out what’s the most world famous Chinese porcelain brand, I found nothing. Of course there are always some domestic brands in China who feel good about themselves and believe they are well-known globally, but actually not.

As a Chinese and a fans of fine china, after this research, I felt very tired and sad.

China is the start and origin of porcelain, and the product is still called “China,” but now we have no signature brands and share at the higher level of the world’s dinnerware market.

What makes me feel worse is that historically, China was the first country to become involved in international trade, and the first international merchandise that exported from China to Europe was porcelain.

Nowadays, when I search some well-known porcelain brands from Amazon, like Spode, Lenox, Portmeirion, the newer products are mostly made in China, even though the brands are located in England, USA etc.. You can see by comments on Amazon that consumers expected that the products which they bought could be made in England for example, but once they received the merchandise and figured out it was made in China, they started to complain. The fine china that was made in China, becomes unwelcome and uncomfortable.

Why? What makes this happen?

Because of the actual quality issue for those made in China? I have randomly compared the Spode(Made in England) and Villeroy&Boch(Made in Germany) coffee cups with the tea cups I bought in China 10years ago: my Chinese tea cups are cheaper in price, but in reality, the porcelain is higher quality--finer, whiter, thinner, and more delicately hand drawn blue patterns.

So why are consumers still complaining?

I think the main reason is because there is no Chinese brand among the higher level market, so it is hard for consumers to pay attention to the quality of Chinese products. Even though the international brand merchandise they bought is made in China, consumers still only recognize the brands, but not the COO. The company can always change its factory; the products may be produced in different locations, but the brand is exclusive.

So brands, not production, are the key to recognition in today’s international markets.

Even thought China has been the original empire of fine porcelain, and its originator, even though she still holds the highest skill and technics, even though China is still producing a massive percentage of the world’s porcelain she depends on others’ brands. so your expertise and the fate of your business is in the hands of another master, not yourself.

Unfortunately the perception of the label Made in China still represents cheap, fake, no taste.

Historically, this shouldn’t be the case. One hundred years ago and earlier, in many ways, China and the Orient were the dream of the western world. From those discontinued china patterns, you can find the clue about people’s thinking about China at that time: the patterns are always elegant, peaceful, with vases, lanterns, and luxurious silk clothing for men and woment. If we want to further research the artisans’ imagination, then we can look at the history of the past 500 years- there were millions of tons of silk, tea, porcelain exported from China to Europe. Those products fulfilled Europeans’ dream: one kind of rich, peaceful, elegant and poetic life. I believe that the Western world started to change their mind about China from 1841 during the Opium war, which was actually a trade war: China was forced to open its doors so that Europe could import more high quality merchandise and make substantial profits without due balance of trade.

There is no doubt that China is capable of producing the best quality of porcelain, as an example of the real quality situation. The problem is that China isn’t good at building its own brands. A famous and long lasting brand not only requires good quality, but also attractive design and proper marketing—How do you attract global customers to buy your merchandise? How do you fulfill customers expectations? How do you give your customers the passion to always come back? Only after successfully doing that, then your brand starts to own its soul, and you have your business moat built. Without your own brand or moat, your destiny is not in your control, and your fate is determined by others.

But-before you can attract customers to buy your brand with your quality and design, you must positively influence their perception of the identity of the brand and gain their trust that it will fulfill its promise.

Given the still present perception of Chinese design and quality, it will be a long and tough journey for China to gain back the share of the world’s trade in fine goods it had as many as 500 years ago.; with the right design marketing and production standards, China should be a leader in fine China and other industries. It has been a long time coming, but it will never be too late.