Americans put low-cost Chinese imports ahead of jobs

Analysis/Comment
Americans put low-cost Chinese imports ahead of jobs
By Michael Hennigan
Jan 14, 2005, 09:51

The US Commerce Department confirmed last week that the US trade deficit for the 11 months to November 2004, had reached $561 billion. The deficit is on track to exceed $600 billion for 2004, up from $496.5 billion in 2003.

According to a report in the New York Times, which underlines the serious state of American competitiveness, US exports of 'scrap and waste' have surged 31 per cent in the past year. China is a huge market for American scrap steel.

In the period since 1999, US exports of advanced technology products are down 21 percent, while those of scrap and waste are up 135 percent in the same period.

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US Commerce Secretary Don Evans and Chinese Commerce Minister Bo Xilai talk trade at lunch together in Beijing January 12, 2005 Source: China Daily

The deficit of $60.3 billion is broken down on a country basis with China in the lead at $16.6 billion. That was more than double the next largest, $7.3 billion with Canada and $7.3 billion with Japan. The Canadian and Japanese imbalances increased in November by at least 24%.

China has fixed the exchange rate of its currency, the yuan, at about 8.28 to the US dollar for a decade. Critics argue that the yuan is undervalued by up to 40%, making China's exports cheaper and giving its manufacturers an unfair advantage.

In a report from Guangzhou, China, the New York Times says that many Chinese and foreign executives in China say that a revaluation of the yuan, is unlikely to be a silver bullet for dealing with the American deficit. Costs in China are so low (the average hourly Chinese factory worker cost is estimated to be US$0.64: the US hourly cost is 34 times the Chinese level - see bottom of page for more information), they say, that a revaluation is unlikely to narrow the deficit appreciably, and might even increase it.

The NYT also says that the trade surplus in what the US government calls "scrap and waste" is rising. The 12-month total of $8.4 billion in such exports is up 31% from a year earlier.

"What is effectively rubbish," said John Lonski, the chief economist of Moody's, "serves as one of the U.S.'s fastest-growing export categories."

Compare the annual levels of exports in those two areas with those of 1999, and you get a stark picture.

Exports of advanced technology products are down 21 percent, while those of scrap and waste are up 135 percent. To some extent the technology decline reflects the bursting of the bubble, but imports of technology products are up 28 percent, indicating that it's not just the bubble at work.

There are easy jokes to be made about trash and technology, but to make them is to risk overlooking the real importance of the deteriorating trade picture, which is that American competitiveness is waning rapidly, and the lower dollar has done nothing to correct that.

On Tuesday, the Economic Policy Institute in Washington released a report* which says that the rise in the United States’ trade deficit with China between 1989 and 2003 caused the displacement of production that supported 1.5 million US jobs. Some of those jobs were related to production or services that ceased or moved elsewhere; others are jobs in supplying industries. These jobs reflect the effect on labor demand – in lost job opportunities – in an economy with a worsening balance between exports and imports. Most of those lost opportunities were in the high-wage and job-hemorrhaging manufacturing sector. The number of job opportunities lost each year grew rapidly during the 1990s, and accelerated after China entered the World Trade Organization (WTO) in 2001. The loss of these potential jobs is just the most visible tip of China’s impact on the U.S. economy.

The report found that 199,000 new jobs were created by the growth in trade with China. But the number of jobs lost was 1.7 million

The Chicago Sun-Times says today that China's Commerce Minister told outgoing Secretary of Commerce Donald Evans that the American's four-year tenure has been only 70% successful.

The pointed comments came as Evans, who is due to leave office shortly, began a three-day visit aimed at pressing China to do more to stop rampant product piracy.

"Judging from the view of friends and judging from the achievements of your work, I should say that 70 percent of what you have done has been pretty good," said Commerce Minister Bo Xilai.

A visibly uncomfortable Evans responded with surprise.

"Oh, hey, that's almost flunking," he said. "That's almost failure."

Later, Evans said Bo meant the comment as praise.

"You know, his answer to me was that Deng Xiaoping only gave himself a grade of 70 percent, so he said he was complimenting me on a job well done," Evans said. Deng was considered China's paramount leader until his death in 1997.

Bo also expressed regret at Washington's decision not to grant China market economy status during Evans' term in office. Such a designation would make it harder for American companies to win claims that Chinese competitors are setting unfairly low prices on goods sold in the U.S. market.

Bo said the designation would show that the United States is "willing to promote its trade with China on a free and fair footing."

"I say it's regrettable too," Evans said. "I wish they were a market economy, but they haven't done enough of the reforms yet that would qualify them for market economy status."

The net debt position of the United States now stands at $2.4 trillion, costing Americans roughly $333 a person a year in interest, according to the New York Times.

On Wednesday, the Committee of 100, a US organization composed of prominent American citizens of Chinese descent, announced the preliminary results of the first of a two-phase study on American Attitudes toward China, conducted by Zogby International.

Robert Lee, Chairman of the Committee of 100, said, “We found that attitudes towards China have improved significantly over the last 10 years (from 46% to 59%). However, Americans do see China as a serious, current economic threat and a potential military threat.”

The major positive change factor appears to be the shift of China towards a marketplace economy and its role as a major global economic power. Moderating Americans’ concerns about job losses and outsourcing are the benefits they see in China’s low cost products.

Summary of Key Preliminary Findings

American Attitudes Towards China and US-China Relations

Familiarity with US-China relations has increased with 60% of General Public Somewhat/Very Familiar compared to 18%, 10 years ago.
Both Opinion Leaders and the General Public view China positively —and significantly more positively than ten years ago (59% in 2004 vs. 46% in 1994).
- Furthermore, Americans view the current relationship with China as improving and expect relationships to continue to improve.
- Why? China’s business and market-based economy was cited by opinion leaders as the number one factor with improved communications, a distant second.
- How to improve US-China relations? increased negotiations / diplomacy, more communications/dialogue between the two countries.
Human rights issues remain the top concern of Americans (64% of Opinion Leaders, 46% of the General Public), who advocate linking China’s trading status to its human rights record.
- China’s global environmental impact emerged as the second top concern by Opinion Leaders and in the second tier of key concerns of the Genera Public in a cluster that also included loss of U.S. jobs and China’s military modernization.
- Both Opinion Leader and General Public groups see China as an ally of the United States ranking above Saudi Arabia and France, but far below the U.K. and Japan.
- However, China is viewed by only about 30% of Americans as a “dependable ally” in the War on Terrorism.
China is viewed as a serious military threat by 12-15% by both groups, but as a potential threat by 67% of Opinion Leaders, and 51% of the General Public.

American Attitudes Towards China in the Global Economy

Compared to military threat, China is viewed as a much higher serious economic threat (for 30% of Opinion Leaders and 24% of the General Public) with over 60% of both groups viewing China as a serious or potential economic threat.
- Yet, over 60% of both groups, including union members, consider low cost goods from China as a benefit to the American consumer.
- Over 70% of both groups consider economic trade with China as beneficial to the US.
- Both Opinion Leaders and General Public agree that China’s economic/industrial growth hurts the global environment.
- Over 50% of Opinion Leaders and 30% of the General Public view the Chinese government as helping to cause the U.S.-China trade imbalance.
Among Opinion Leaders and the General Public, China, followed by India, is considered to be the major source of job losses versus Mexico.
Surprisingly, there is no union gap, with very little differences in attitudes regarding severity of job loss among union versus non-union households.
Significantly, Americans who lost their jobs in the past year do not view China as a major cause.

Other Factors Impacting Public Perceptions

46% percent of Opinion Leaders and 30% of the General Public feel that Hong Kong is worse off since its handover from Britain to China in 1997.
Americans lean against greater US involvement in Cross Strait affairs, and moreover, they overwhelmingly oppose the use of US military force.
The first things that come to mind about China for Opinion Leaders are economic growth and population as the highest responses with Communism a distant third.
The American public cites work ethic, family values, history, and commitment to education as the most admirable things about the Chinese and their culture.
Both Opinion Leaders and the General Public view Chinese immigration as a significantly more positive than negative development.
Twenty three percent of Americans say that they have a friend or family member that adopted a Chinese baby.

The survey was conducted in two parts:

1. Opinion Leaders – A sample of 203 in-depth interviews of Americans who are leaders in fields of business, media, government, academia, etc., and are also familiar with US-China relations. Respondents were chosen from a random list of Zogby-compiled contacts nationwide and interviews were conducted from November 18 – December 1, 2004 and December 13 – December 21, 2004. There is a margin of error of +/-6.9% with this sample.

2. General Public – 1202 adults selected at random nationwide, from December 8 – December 11, 2004. There is a margin of error of +/-2.9% with this sample. Slight weights were added to region, party, age, race, religion and gender.

Click for a copy of the Economic Policy Institute's report on US-China trade.

International Comparisons of Hourly Labour/Payroll/Compensation Costs for Production Workers in Manufacturing

December 2004- Last month, the Bureau of Labor Statistics, (BLS) of the U.S. Department of Labor published data of comparisons of both the hourly direct costs and total costs of production workers in the US and 30 other countries. The data is provided in both the US dollar and local currencies.

The BLS is seeking to provide data on the Chinese market and Business Week magazine has provided a preview of comparable figures for China. The cost of Chinese factory labour is estimated to be $0.64 per hour. It includes both wages and employer contributions.

The decline of the US dollar is having a significant impact on relative costs - making wage costs of currencies which are appreciating, more expensive relative to US costs. In the euro zone, the differential between the cost of labour in Germany : €26.44 (including what Americans refer to a 'fringe' -employer's insurance and related add-ons) and the Irish rate of €16.92, is striking. These compare with the US rate of $21.97. Click for report.