U.S.-China gap widening
Concerned by the fast-growing trade deficit with China, U.S. lawmakers are pushing for sanctions and penalties to slow down the Chinese export juggernaut. But many economists and other experts warn that political action may misfire and only hurt American consumers.
Here’s a primer on the issue.
How big is the trade deficit with China?
In 2006, the U.S. imported goods worth $287.77 billion from China and exported goods worth $55.22 billion to China, according to the Foreign Trade Division of the U.S. Census Bureau. Do the math and you get a $232.55-billion trade deficit.
Is that a lot?
Yep. In fact, it’s the biggest trade deficit the U.S. has ever had with one country. Second place in 2006 went to Japan, with a paltry $88.44 billion.
Most startling is how fast the deficit is growing -- it’s up 180% in the last five years. Notably, U.S. exports to China grew by 188% over the same period, a rate that would normally be considered terrific. But imports from China have been growing nearly as fast. With exports just one-fifth of imports, they would have to grow five times as fast just to keep the trade deficit from growing.
It’s been about 20 years -- April 1986, to be exact -- since the U.S. actually had a trade surplus with China.
It’s not just the U.S. that is getting Chinese exports. The World Trade Organization reported last month that China had surpassed the United States to become the world’s second-leading exporter, after Germany.
What are we importing from China?
The biggest categories are computers and related electronics, cellphones, shoes, video games, TVs, DVD players and toys.
What are we exporting to China?
Our biggest exports to China are aircraft, computer circuits and microprocessors, soybeans, cotton, copper waste and scrap, and aluminum waste and scrap.
Why are imports from China rising so fast?
That’s the $232-billion question. Part of the credit goes to China’s rapid industrial modernization and cheap labor. China is churning out more goods than ever using workers that earn an average wage that is one-thirtieth of that in the U.S. This helps keep prices low.
But some say China is cheating. Many in Washington, including some members of Congress, Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke, complain that China keeps its currency, the yuan, artificially low, thus keeping prices down. Some economists believe the yuan may be undervalued by as much as 40%.
Also, some U.S. manufacturers say China’s companies are heavily subsidized by the government, giving them an unfair advantage. And groups such as the AFL-CIO and China Labor Watch have complained that Chinese workplace standards are lax, allowing underage labor and forcing workers to toil for long hours without overtime.
Is the trade deficit with China a bad thing?
It is, according to businesses, labor groups and members of Congress who blame the Chinese for the loss of 2.8 million U.S. manufacturing jobs in the last six years.
Since 2001, employment in U.S. textile mills and apparel manufacturing have both dropped by half, while jobs at toy makers have dropped by 40% and furniture makers by 20%.
But the job losses aren’t China’s fault, some experts say. U.S. manufacturers have been able to cut employment largely by using new technology to become more efficient, say studies by the Congressional Budget Office and the Center for Strategic and International Studies, among others.
Moreover, experts contend that most of China’s import growth has come by taking business away from other countries, not from U.S. firms. As China’s imports to the U.S. have risen, imports from other Pacific Rim countries have fallen.
Finally, by buying low-priced Chinese products, American consumers and businesses save money that can be invested or spent on other things.
“Because of China’s low-cost, high-quality products and its rapidly growing market for U.S. exports, the United States is on balance about $70 billion per year richer as a result of trade with China,” said Bates Gill, a China expert with the center.
Is the trade deficit an accurate reflection of reality?
Perhaps not. For starters, the U.S. trade figures might be wrong. In 2005, China’s government said the trade imbalance with the U.S. was $114.2 billion, while the U.S. reported $201.5 billion. A 2005 Federal Reserve report found that U.S. figures sometimes include goods that come from third-party countries but pass through China’s port at Hong Kong on their way to the U.S. Without clear documentation explaining their origin, these goods are counted as Chinese imports.
Also, the trade deficit numbers cited by the U.S. reflect goods, not services. In services, the U.S. had a trade surplus with China in 2005 of $2.6 billion that is expected to rise to at least $15 billion by 2015, according to a recent study by Oxford Economics.
Experts say that perhaps the most important reason for skepticism about trade deficit figures is that China is often the final assembly point for products made of parts manufactured in other countries. For example, electronic parts made in Thailand, the Philippines and Malaysia may be shipped to an American company’s plant in China to be assembled into a computer that is then shipped to the U.S. Though clearly a multinational creation, the computer is considered as having come from China alone in trade statistics.
What are U.S. politicians doing?
Despite the nuances of international trade, the political will for firm action against China appears to be growing. The Commerce Department fired the first shot in March when it announced the U.S. would impose tariffs of 20.4% and 10.9% on glossy paper imported from two Chinese paper makers. The action came at the behest of an Ohio-based paper maker that argued that the two Chinese firms were getting subsidies such as tax breaks, debt forgiveness and low-cost loans from their government. The petition was the first of its kind aimed at China since two such requests were rejected by the department in 1991.
Imports of glossy paper, used in annual reports, movie posters and catalogs, represent less than one-tenth of 1% of all Chinese goods coming into the U.S. But some see that move as a signal of possible actions of wider impact, with U.S. steel, furniture, textile and plastics businesses among those that might line up for protection from Chinese imports.
The Bush administration argues that it has been tough on China, pointing to 31 anti-dumping orders it’s directed at the Chinese since 2001. In February, the U.S. filed complaints with the World Trade Organization accusing China of using improper tax laws and loan provisions that hurt U.S. firms. Last month, the White House said it planned to file more WTO complaints against China over counterfeiting of U.S. intellectual property and alleged trade barriers involving movies, music and books.
But many in Congress want more. One bill under consideration would force China to apply annually for “normal trade relations” status with the U.S. Another proposal would impose a 27.5% tariff on all products from China unless the yuan is allowed to float freely.
A different bill aimed at the yuan would require the Treasury Department to take action when it identifies currency misalignment rather than the currently required “manipulation.” Bill sponsor Sen. Debbie Stabenow (D-Mich.) said that this change would allow the U.S. to take countermeasures even if it couldn’t prove intentional harm by the Chinese government.
“Just because you can’t show someone intended to spray you with a hose doesn’t mean that it’s not clear you’re getting soaked,” she said.
