In low-priced imports, worrisome costs

The recall yesterday of nearly 1 million Mattel Inc. toys, following safety problems with several other Chinese exports over the past three months, underscores that the low prices enjoyed by US consumers and businesses can include hidden, sometimes dangerous costs.

"When you bid a job, you don't necessarily want the lowest price. You want the lowest price consistent with the quality you want," said Philip Levy, resident scholar at the American Enterprise Institute, a Washington think tank. US businesses, he said, "forgot that caveat."

In Mattel's case, the company said that recalling the toys, decorated in lead paint by its Chinese contractor, will cut its second-quarter operating profit by $30 million. The toys, sold under the Fisher-Price label, include popular characters such as Elmo, Big Bird, and Dora the Explorer. Mattel executives said two-thirds of the toys never reached store shelves, and federal safety officials said no injuries have been reported from the recalled products.

US imports of Chinese goods have nearly tripled since 2000, according to the Commerce Department. Economists said the surge has largely benefited the US economy, boosting the pur chasing power of consumers while keeping inflation in check. Low prices and fierce competition from China have forced other businesses around the world to hold their prices down.

But in recent months, tainted pet food, toothpaste laced with antifreeze, contaminated shrimp, and defective tires have shown that there can be significant risks in the flood of Chinese imports. In many instances, low prices have come at the expense of quality and safety, economists said. China's explosive economic growth has been accompanied by significant increases in water and air pollution there.

"We're not quite getting the deal we think we're getting," said Mark Zandi, chief economist at Moody's Economy.com. "You know the old adage, 'You get what you pay for.' "

The Chinese government insisted in a statement yesterday that "99 percent of China's exports are good and safe."

The recent recalls have provided new ammunition to critics of US trade policy, who argue that China has flouted environmental and labor standards, failed to protect intellectual property, and given little concern to the safety of its products. Meanwhile, Chinese imports have flooded the US at the expense of American companies and workers, they said.

Robert E. Scott, senior international economist at Economic Policy Institute, a Washington think tank, estimates that growth in the US trade deficit with China since 2001 has cost 1.8 million US jobs. A trade deficit results when a country imports more than it exports. The US trade deficit with China has quadrupled, to more than $230 billion, since 2001, according to the Commerce Department.

In addition, competition with low-wage workers in China has suppressed US wages, particularly for manufacturing workers, Scott said.

"These are very real costs, but we ignore them," Scott said. "It's like keeping score in a ball game but only counting runs scored by the home team. You don't know what's going on."

Most economists, however, say that open trade, while causing short-term dislocations, spurs economic growth in the long run. Trade increases efficiency, boosts productivity, and raises standards of living, they say.

The quality problems in China are not unusual for a developing nation, economists said, noting that shoddy goods and tainted foods were common in late 19th-century America, spurring the creation of the Food and Drug Administration and other regulatory agencies. China, making the transition from a centrally planned to market economy, has put in place adequate health and safety regulations, but has yet to develop the independent regulatory agencies and judiciary needed to enforce them, some analysts said.

Ultimately, China will have to, the analysts said. While China, because of its vast labor force and massive scale of its production, is among the world's lowest-cost producers, it is not the only one. US companies, faced with product recalls, damage to their reputations, and loss of customers, can move production to other nations, such as Thailand, without adding much more cost.

If "Made in China" becomes synonymous with shoddy and unsafe products, analysts said, it will undermine Chinese exports, which are driving the economy's growth and modernization.

"The market will punish them," said Nariman Behravesh, chief economist at Global Insight, a Waltham forecasting firm. "They could get away with it at home, but in a global marketplace, they can't."

Improved health, safety, and environmental enforcement will mean higher costs for Chinese products, although costs will still remain relatively low, analysts said. Siva Yam, president of the US-China Chamber of Commerce, an independent group financed by business, said the Chinese government is pragmatic and will take the necessary steps to insure the quality of Chinese products.

Yam said that in some instances Chinese producers are cutting corners to meet the demands for rock bottom prices from US businesses.

He added that he doesn't expect the recent problems to suppress the US appetite for Chinese goods for long.

"In the short run, it will have a negative impact, and China will make an adjustment," Yam said. "But as long as consumers are looking for the lowest possible costs, it's not going to have a long-term impact."

Robert Gavin can be reached at rgavin@globe.com. Bloomberg News contributed to this report.