The Wilson Center's CANADA INSTITUTE and MEXICO INSTITUTE convened a panel on the impact of Chinese activity in the North American market.

Carol Wise, Associate Professor, School of International Relations, University of Southern California

William Martin, Lead Economist, Development Research Group, The World Bank

Enrique Dussel Peters, Professor of Economics, Universidad Nacional Autónoma de México

Paul Evans, Co-CEO and Chairman, Executive Committee, The Asia-Pacific Foundation of Canada

Kent Hughes, Director, Program on Science, Technology, America and the Global Economy, Woodrow Wilson International Center for Scholars

China's quest for markets and commodities has forced the NAFTA member states to re-evaluate their trade strategies. On October 23rd, the Canada Institute and the Mexico Institute welcomed Carol Wise, former Wilson Center Public Policy Scholar and Associate Professor at the School of International Relations, University of Southern California, who convened a panel on the impact of Chinese activity in the North American market. Wise's overview presentation reviewed the principal goals of NAFTA. The data she presented show that the hopes for higher growth rates in Canada, Mexico, and the United States have largely been fulfilled. China's entry into the North American market, though, has challenged NAFTA members and highlighted the weaknesses in each country.

William Martin presented his analysis of the parallel growth of China and India and their impact on the NAFTA countries. When viewed by the segments within sectors, China and India do not compete directly with Canada, Mexico, or the United States. The increase in production in China and India has been mostly in complementary sectors, Martin said, and their increased rate of imports from those countries has been good for North American producers. Martin implied that in purely economic terms, the growth rates in the NAFTA countries remain healthy and stable. He concluded that China's increasing growth has a positive economic impact on world welfare, and does not have a negative impact on industrial outputs in North America.

The panel then turned its focus to the challenges and responses of each of the NAFTA countries. Panelist Enrique Dussel Peters said that Mexico is the least prepared to deal with China, and suggested more accurate statistics and models could help Mexico navigate its trading relationship with China more effectively. Clashing trade structures mean that Mexico competes with China in more sectors, and in the future more segments, than the other NAFTA countries; China could even become the main exporter to Mexico by 2008, pulling ahead of the United States. Until now there has been very little attempt in Mexico to understand what China means to the economy. China is an uneasy partner for Mexico, and both the Mexican public and private sectors need more information on China to adequately assess the latter's impact on the Mexican economy and on the NAFTA trading relationship.

Canadian awareness of the Chinese presence in its markets has risen steadily over the last few years. Panelist Paul Evans said that in his work with the Canadian business community, he constantly hears the mantra, "Every Canadian business needs a China strategy." Through a long period of Liberal leadership, the Canadian government seemed to have a consensus strategy with regard to China; under the new Conservative government, though, that consensus is under challenge. Evans said that the Canada-China relationship is at its most difficult point since diplomatic relations began in 1970. There is a deep internal debate within the government on how to react as the new economic challenges meet the geopolitics of the relationship, especially in the areas of freedom and the promotion of democracy. Evans suggested that the NAFTA countries increase North American capacity to handle trade with China by building transportation infrastructure for more cross-Pacific trade, and that Canada, Mexico, and the United States need to think "big" about continental trade with China, and not just West Coast trade. Evans encouraged deeper integration, not deeper protection, adding that if trade were stymied, North America would see wrenching economic problems.

Kent Hughes, director of the Wilson Center's Program on Science, Technology, America, and the Global Economy, reminded the audience that China aspires to be a leading innovator and is investing heavily in educating engineers and researchers to enhance its future growth. Some estimate that growth rates of eight percent are needed to assure social stability and support for the current Chinese government, a key reason for China's commitment to competitiveness. Hughes said that China has become a proxy for globalization, and global issues are crowding out attention to China. He suggested that another Plaza-like Accord between the NAFTA countries and China might be good for North America.

There was a sense in the discussion that followed that competition from China will drive the NAFTA countries to make adjustments and address problems. Carol Wise pointed out that most such actions are straightforward, and that China will encourage NAFTA countries to end a long period of complacency towards NAFTA. There is room for Canada, Mexico, and the United States to work with each other's complementarities with respect to China. Several people suggested that perhaps the event title ought to have included a question mark: "China: NAFTA's Fourth Partner?"

David N. Biette, Director, Canada Institute, (202) 691-4133
Andrew Selee, Director, Mexico Institute, (202) 691-4088