Growing U.S. Trade with China cost 2.8 millions jobs between 2001 and 2011

Cette analyse est valable pour les pays industriels modernes

Since China entered the World Trade Organization in 2001, the extraordinary growth of U.S. trade with China has had a dramatic effect on U.S. workers and the domestic economy.
The United States is piling up foreign debt and losing export capacity, and the growing trade deficit with China has been a prime contributor to the crisis in U.S. manufacturing employment.
Between 2001 and 2010, the trade deficit with China eliminated or displaced 2.8 million jobs, 1.9 million (69.2 percent) of which were in manufacturing. The 1.9 million manufacturing jobs eliminated or displaced due to trade with
China represents  nearly half  of all U.S. manufacturing jobs lost or displaced between China’s entry into WTO and 2011.
The jobs impact of trade with China:
·         Most of the jobs lost or displaced by trade with China between 2001 and 2010 were in manufacturing industries (1.93 million jobs, or 69.2%).
·         Within manufacturing, rapidly growing imports of computer and electronic parts (including computers, parts, semiconductors, and audio-video equipment) accounted for more than 44% of the $194 billion increase in the U.S. trade deficit with China between 2001 and 2010. The growth of this deficit contributed to the elimination of 909,400 U.S. jobs in computer and electronic products in this period. Indeed, in 2010, the total U.S. trade deficit with China was $278.3 billion—$124.3 billion of which was in computer and electronic parts.
·         Global trade in advanced technology products—often discussed as a source of comparative advantage for the United States—is instead dominated by China. This broad category of high-end technology products includes the more advanced elements of the computer and electronic parts industry as well as other sectors such as biotechnology, life sciences, aerospace, and nuclear technology. In 2010, the United States had a $94.2 billion deficit in advanced technology products with China, which was responsible for 34% of the total U.S.-China trade deficit. In contrast, the United States had a $13.3 billion surplus in ATP with the rest of the world in 2010.
·         Other industrial sectors hit hard by growing trade deficits with China between 2001 and 2010 include apparel and accessories (178,700 jobs), textile fabrics and products (92,300), fabricated metal products (123,900), plastic and rubber products (62,000), motor vehicles and parts (49,300), and miscellaneous manufactured goods (119,700). Several service sectors were also hit hard by indirect job losses including administrative, support, and waste management services (204,300) and professional, scientific, and technical services (173,100).
The job displacement estimates in this study are conservative. They include only the direct and indirect jobs displaced by trade, and exclude jobs in domestic wholesale and retail trade and advertising.



    

Introduction: High expectations attended China’s entry into WTO

·         Today’s international trading system grew out of the Bretton Woods Agreements negotiated among Allied nations in July 1944, which established rules for financial relations among signatories and established the International Monetary Fund and the World Bank.
·         1994 creation of the World Trade Organization, an institutional body charged with settling disagreements among nations regarding the rules agreed upon in The World Trade Organization was empowered with the ability to engage in dispute resolution and to authorize imposition of offsetting duties if its decisions were ignored or rejected by member governments. It expanded the trading system’s coverage to include a huge array of subjects never included in trade agreements before, such as food safety standards, environmental laws, social service policies, intellectual property standards, government procurement rules, and more (Wallach and Woodall 2011).
·         Over time, countries that were not part of the original GATT group have sought entry into the WTO to gain improved market access for their goods at lower tariff levels, and to encourage development of their traded goods industries. 
Proponents of China’s entry into the WTO frequently claimed that it would create jobs in the United States, increase U.S. exports, and improve the trade deficit with China.
In 2000, President Clinton claimed that the agreement then being negotiated to allow China into the WTO “creates a win-win result for both countries.” Exports to China “now support hundreds of thousands of American jobs,” and these figures “can grow substantially with the new access to the Chinese market the WTO agreement creates,” he said (Clinton 2000, 9-10). China’s entry into the WTO was supposed to bring it into compliance with an enforceable, rules-based regime that would require China to open its markets to imports from the United States and other nations by reducing tariffs and addressing non-tariff barriers to trade. Promoters of liberalized U.S.-China trade argued that the United States would benefit because of increased exports to a large and growing consumer market in China. The United States also negotiated a series of special safeguard measures designed to limit the disruptive effects of surging imports from China on domestic producers.
However, as a result of China’s:
1.      currency manipulation and other trade distorting practices,
2.      including extensive subsidies,
3.      legal and illegal barriers to imports,
4.      dumping and suppression of wages and labor rights,
The envisioned flow of U.S. exports to China did not occur.
Further, the agreement spurred foreign direct investment in Chinese enterprises, which has expanded China’s manufacturing sector at the expense of the United States.
Finally, the core of the agreement failed to include any protections to maintain or improve labor or environmental standards.
In retrospect
In retrospect, the promises about jobs and exports misrepresented the real effects of trade on the U.S. economy: Trade both creates and displaces and destroys jobs. Increases in U.S. exports tend to create jobs in the United States, but increases in imports will lead to job loss—by destroying existing jobs and preventing new job creation—as imports displace goods that otherwise would have been made in the United States by domestic workers. This is what has occurred with China since it entered WTO.
The United States’ widening trade deficit with China is costing U.S. jobs.





Currency manipulation is a major cause of the trade deficit

A major cause of the rapidly growing U.S. trade deficit with China is currency manipulation.
Unlike other currencies, the Chinese yuan
does not fluctuate freely against the dollar.
Instead, China has tightly pegged its currency to the U.S. dollar at a rate that encourages a large bilateral surplus with the United States.
As China’s productivity has soared, its currency should have adapted, increasing in value to maintain balanced trade.
Du simple bon sens, par contre, nos multinationales qui ont investi des trillions en Chine ne veulent pas perdre leurs avantages concurrentiels.
But the yuan has instead remained artificially low as China has aggressively acquired dollars and other foreign exchange reserves to further depress the value of its own currency. (To depress the value of its own currency, a government sells its own currency, which increases its foreign reserves.)
China held a total of $3.2 trillion in foreign exchange reserves (Oliver 2011), about 70% of which were held in U.S. dollars. This intervention makes the yuan artificially cheap relative to the dollar, effectively subsidizing Chinese exports.
The best estimates place this effective subsidy at roughly 28.5% of the U.S. dollar, even after recent appreciation in the yuan (Cline and Williamson 2011).
Currency intervention also artificially raises the cost of U.S. exports to China and the rest of the world by a similar amount, making U.S. goods less competitive in that country, and in every country where U.S. exports compete with Chinese goods.
This is because China is the most important competitor for the United States in all other third country markets, even more important than Germany and all other members of the European Union combined.  
China’s currency manipulation has compelled:
·       Other countries to follow similar policies in order to protect their relative competitiveness and to promote their own exports.
·       Widespread currency manipulation has also contributed to the growth of very large, global current account imbalances (a country’s current account balance is the broadest measure of its trade balance).
·       Cline and Williamson (2011) call for rebalancing current global account flows in part through a substantial realignment of the dollar against currencies from China, Hong Kong, Malaysia, Taiwan, and Singapore that are undervalued relative to the dollar.
·       A recent report showed that full revaluation of the yuan and other undervalued Asian currencies would improve the U.S. current account balance by up to $190.5 billion, increasing U.S. GDP by as much as $285.7 billion, adding up to 2.25 million U.S. jobs, and reducing the federal budget deficit by up to $857 billion over 10 years (Scott 2011a). This change to the current account balance would also help workers in China and other
·       Asian countries by reducing inflationary overheating and increasing workers’ purchasing power. 
·       It would also benefit other countries. The undervaluation of the yuan has put the burden of global current account realignment pressures on other countries such as Australia, New Zealand, South Africa, and Brazil, whose currencies have also become overvalued on a trade-weighted basis.





Other illegal laws, regulations and policies are also responsible for the large U.S. trade deficit with China

Currency manipulation is one example of a practice that violates the rules of the international trading system set out in the GATT and WTO agreements (Stewart and Drake 2010).
Other Chinese government policies also illegally encourage exports.
1.    China extensively suppresses labor rights, which lowers production costs within China. An AFL-CIO study estimated that repression of labor rights by the Chinese government has lowered manufacturing wages of Chinese workers by 47% to 86%
2.    China also provides massive direct export subsidies to many key industries
3.    Finally, it maintains strict, non-tariff barriers to imports. As a result, China’s $364.05 billion of exports to the United States  in 2010 were more than four times greater than U.S. exports to China, which totaled only $85.7 billion), making the China trade relationship the United States’ most imbalanced by far.
Partly because the agreement accepting China into the WTO failed to include any protections to maintain or improve labor or environmental standards, China’s entry into the WTO has further tilted the international economic playing field against domestic workers and firms and in favor of multinational companies from the United States and other countries as well as state- and privately owned exporters in China.
This shift has increased the global “race to the bottom” in wages and environmental quality and closed thousands of U.S. factories, decimating employment in a wide range of communities, states, and entire regions of the United tates. U.S. national interests have suffered while U.S. multinationals have enjoyed record profits on their foreign direct investments (FDI) (Scott 2007, 2011b).
Pourquoi ne nous sommes-nous pas protégés contre le Dumping social ?
Parce que ceux qui ont fait la promotion de la mondialisation, ce sont les mêmes qui font des milliards de profits actuellement, une terre fertile d’humain à bas prix et sans aucune règle pour les limités, nos oligarchies financières et industrielles se donnent à cœur joie depuis cette libéralisation du marché sans entrave.





Another crucial missing link:  Foreign direct investment and outsourcing

But proponents failed to consider the effect of China’s entry on foreign direct investment (FDI) and outsourcing. FDI has played a key role in the growth of China’s manufacturing sector. 
China is the largest recipient of FDI of all developing countries (Xing 2010) and is the third largest recipient of FDI over the past three decades, trailing only the United States and the United Kingdom. Foreign-invested enterprises (both joint ventures and wholly owned subsidiaries) were responsible for 55% of China’s exports and 68% of its trade surplus in 2010.
Outsourcing
·       Through foreign direct investment in factories that make goods for export to the United States—has played a key role in the shift of manufacturing production and jobs from the United States to China since it entered the WTO in 2001. 

Failed expectations of a growing Chinese market for U.S. goods

Another critically important promise made by the promoters of liberalized U.S.-China trade was that the United States would benefit because of increased exports to a large and growing consumer market in China.
However, despite widespread reports of the rapid growth of the Chinese middle class, this growth has not resulted in a significant increase in U.S. consumer exports to China.
The most rapidly growing exports to China are bulk commodities such as grains, scrap, and chemicals; intermediate products such as semiconductors; and producer durables such as aircraft.

Trade-distorting policies and unplanned for investment shifts have combined to radically increase China’s share of the U.S. trade deficit

The bottom line of the influences discussed above is:
As a result of China’s currency manipulation and other trade distorting practices (including extensive subsidies, legal and illegal barriers to imports, dumping and suppression of wages and labor rights), the increase in foreign direct investment in China and related growth of its manufacturing sector, and the absence of a growing market for U.S. consumer goods in China, the U.S. trade deficit with China rose from $84 billion in 2001 to $278 billion in 2010, an increase of $194 billion.
Since China entered the WTO in 2001, this deficit has increased by $19.4 billion per year, on average, or14.2% per year.
These figures reflect how China’s share of the U.S. trade deficit has soared.
Unless China raises the real value of the yuan by at least 28.5% and eliminates these other trade distortions, the U.S. trade deficit and related job losses will continue to grow rapidly. (Although China did respond to international pressure in the late 2000s and allow some appreciation in the yuan, it was too little and too late to help arrest the widening U.S.-China trade gap.
Valable, pour tous les pays industriels, mais je vais citer Nouriel Roubini :  
notre G20 est un gros
Gzéro.
Donc, s’attendre d’avoir un consensus quand tout le monde tire sur son bord, on risque d’avoir du protectionniste bien avant que l’on avance une solution juste et équitable pour l’ensemble de l’Économie mondiale.





Growing trade deficits and job losses

Each $1 billion in exports to China from the United States supports American jobs. However, each $1 billion in imports from China displaces the American workers who would have been employed making these products in the United States. On balance, the net employment effect of trade depends on the changes in the trade balance. 
An improving trade balance can support job creation, but growing trade deficits usually result in growing net U.S. job displacement.
The United States has had large trade deficits with China since 2001, which increased in every year except 2009, when U.S. trade with all countries collapsed due to the recession of 2007-2009. 
Jobs displaced by the growing China trade deficit are a net drain on employment in trade-related industries, especially those in manufacturing. Even if increases in demand in other sectors absorb all the workers displaced by trade (an unlikely event), job quality will likely suffer because many non-traded industries such as retail trade and home health care pay lower wages and have less comprehensive benefits than traded-goods industries.
Since China’s entry into the WTO in 2001 and through 2010, the increase in U.S.-China trade deficits eliminated or displaced 2,790,100 U.S. jobs, as shown in the bottom half of Table 1. Between 2008 and 2010 alone 453,100 jobs were lost, either by the elimination of existing jobs or by the prevention of new job creation.
On average, 310,000 jobs per year have been lost or
displaced since China’s entry into the WTO.

Trade and jobs, by industry

The composition of imports from China is changing in fundamental ways, with serious implications for certain kinds of high-skill, high-wage jobs once thought to be the hallmark of the U.S. economy.
China is moving rapidly “upscale,” from low-tech, low-skilled, labor-intensive industries such as apparel, footwear, and basic electronics to more capital- and skills-intensive sectors such as computers, electrical machinery, and motor vehicles; it has also developed a rapidly growing trade surplus in high-technology products.
From 2001 to 2010, imports from China increased dramatically, rising from $102 billion in 2001 to $364.0 billion in 2010.
In fact, rapidly growing imports of computer and electronic parts (including computers, parts, semiconductors, and audio-video equipment) accounted for more than 44% of the $194 billion increase in the U.S. trade deficit with
China between 2001 and 2010.
In 2010, the total U.S. trade deficit with China was $278.3 billion—$124.3 billion of which was in computer and electronic parts. 
Table 2 provides a snapshot of the current trade balance by sector, broken down by exports and imports.
Manufactured goods were 99.1% of total imports in 2010, and included a wide array of commodities. Computer and electronic parts were responsible for 37.3% of total imports in 2010, including computer equipment ($60.1 billion, or 16.5%) and communications, audio, and video equipment ($52.9 billion, 14.5%). Other major importing sectors included apparel ($30.9 billion, 8.5%) and miscellaneous manufactured commodities ($42.1 billion, 11.6%).
The data reflect China’s rapid expansion into higher value-added commodities once considered the strength of the United States, such as computer and electronic parts, which accounted for 37.3% of U.S. imports from China in 2010.
Advanced technology products (ATP)
This growth is apparent in the shifting trade balance in advanced technology products (ATP), a broad category of high-end technology goods trade tracked by the U.S. Census Bureau. ATP includes the more advanced elements of the computer and electronic parts industry as well as other sectors such as biotechnology, life sciences, aerospace, nuclear technology, and flexible manufacturing. The ATP sector includes some auto parts; China is now one of the top suppliers of auto parts to the United States, having recently surpassed Germany.
Trade deficits are highly correlated with job loss or displacement by industry. Growing trade deficits with China eliminated 1,930,900 manufacturing jobs between 2001 and 2010, more than two thirds (69.2%) of the total.

Job losses by state

Growing trade deficits with China have reduced demand for goods produced in every region of the United States and led to job displacement in all 50 states and the District of Columbia, as shown in Table 4A .
Growing trade deficits with China have clearly reduced domestic employment in traded goods industries, especially in the manufacturing sector, which has been pummeled by plant closings and job losses. Workers displaced by trade from the manufacturing sector have had particular difficulty securing comparable employment elsewhere in the economy.
More than one-third of workers displaced from manufacturing dropped out of the labor force and average wages of those who found new jobs fell 11% to 13%.
Many of the mechanisms that could offset employment losses caused by growing trade deficits are not operating in the current downturn. The Federal Reserve cannot cut interest rates any lower than it already has, and interest-sensitive industries such as residential construction are not experiencing employment gains from lower rates.
In short, in today’s economy with its high unemployment rate, jobs displaced due to trade deficits with China are much more likely to be actual net, economy-wide losses than simply job reallocations.

Conclusion

The growing U.S. trade deficit with China has displaced millions of jobs in the United States and contributed heavily to the crisis in U.S. manufacturing employment, which has heightened over the last decade largely due to trade with China.
 Moreover, the United States is piling up foreign debt, losing export capacity, and facing a more fragile macroeconomic environment.
Is America’s loss China’s gain?
The answer is not clearly affirmative. China has become dependent on the U.S. consumer market for employment generation, suppressed the purchasing power of its own middle class with a weak currency, and, most important, now holds over $3 trillion in hard currency reserves instead of investing them in public goods that could benefit Chinese households.
Its vast purchases of foreign exchange reserves have stimulated the overheating of its domestic economy, and inflation in China has accelerated rapidly in the past year. Its repression of labor rights has suppressed wages, thereby artificially subsidizing exports.
The U.S-China trade relationship needs a fundamental change.
Addressing the exchange rate policies and labor standards issues in the Chinese economy are important first steps.