Wednesday, April 5, 2017

Navarro film “Death by China” offers distorted guide to U.S.-China trade policy

By Daniel Griswold. He is Senior Research Fellow and Co-Director, Program on the American Economy and Globalization, Mercatus Center at George Mason University. Excerpts:
"The biggest failing of the film is its gross exaggeration of the impact that trade with China has had on the U.S. economy, manufacturing, and workers, and the overwhelmingly negative spin it puts on it.

The date when everything started to go wrong, according to the movie, is China’s official entry into the World Trade Organization in December 2001. China’s accession was facilitated by the approval by Congress in May 2000 of Permanent Normal Trade Relations, which granted China’s exporters access to the U.S. market under similar conditions extended to the WTO’s other 150 members.

Under the accession agreement, no U.S. duties were actually lowered, since we had been granting China conditional NTR since the 1980s. What did change was China’s trade regime, which, according to a 2015 report from the U.S. Trade Representative, has reduced China’s average tariff rate on goods of greatest interest to U.S. industry from 25 percent before accession to 7 percent.
As “Death by China” notes, goods imported to the U.S. from China grew substantially after its entry into the WTO — more than four-fold from $102 billion in 2001 to $426 billion in 2012, when the movie was released. But U.S. goods exported to China in the same period grew more than five-fold, from $19 billion to $110 billion. Annual growth of U.S. exports to China in that period was 17.3 percent compared to 13.8 percent for imports from China.

Far from unleashing a “flood” of imports to the United States, the annual growth rate of China’s imports to the United States actually decelerated from an annual rate of 18.4 percent in the decade before China’s WTO accession. And in the four years since the film was released, 2012 to 2016, the annual rate of growth in imports from China has further declined to 2.1 percent.

None of this should be a surprise. China’s re-engagement in the global economy beginning in the 1980s is a one-time historical event and its entry into the WTO an inevitable milestone in the process. The deceleration in the growth of imports from China shows that it is finding its natural place in the global trading system.

Although we see Chinese-assembled products all around us in our homes and at the office, they remain a modest share of our total spending. Goods imported from China as a share of total U.S. personal income rose from 0.1 percent in the mid-1980s to 1.1 percent in 2001 to 3.1 percent in 2012. But since then the share has leveled off, actually dropping back to 2.9 percent in 2016. Is there anything wrong with the fact that Americans spend 3 percent of our income on products assembled by the one-fifth of mankind that lives in China?

Even that 3 percent is misleading because it includes a large amount of value added from other trading partners. The most well-known example is the iPhone. While stamped “Assembled in China,” the typical iPhone contains only a few dollars of value added from China. The rest is R&D and components originating in Japan, Sound Korea, Germany, the United States, and other countries
The rising value of goods imported from China has displaced the production of some products that were made in the United State, but those imports have primarily replaced products that had been previously imported from other countries.

Consider the nearby chart that shows imported goods from China as a percent of total U.S. imports. The share has indeed climbed in the past 30 years, from 1 percent in the mid-1980s to 21 percent in 2016. But note the offsetting decline in the share of imports from seven other major U.S. trading partners in East Asia (Hong Kong, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand). During the past three decades, the combined share of imports from China and the other nations has been remarkably stable.

This reflects the emergence of China as the final assembly platform in the Pacific Rim supply chain. Electronics and other goods that used to be exported from the other East Asian countries directly to the United States are now made in China or make a final stop in China for assembly before heading across the Pacific in a container ship bound for Long Beach. Because of our simplistic trade accounting, the full value of the imports are credited to China, artificially inflating our bilateral goods deficit with China and fueling the hyperbole of Navarro and other merchants of fear."
"In 2016, U.S. workers in U.S. factories on U.S. soil produced a record $2.17 trillion in manufacturing value added. In the 2001–2012 timeframe covered in “Death by China,” when U.S. factories were supposedly being laid waste by Chinese imports, real manufacturing value added in the United States rose by $290 billion, or almost 20 percent."

"Spread over more than a decade, the employment impact of Chinese imports represents the loss of fewer than 100,000 manufacturing jobs a year. That may seem a large number in isolation, but it is quite small when compared to the 2.5 million jobs that are eliminated in our economy each month and another 2.5 million-plus that are created."

"When we look at the more than 5 million manufacturing jobs that were lost from 2000 to 2010, Chinese imports were not the most important factor. Productivity gains fueled by automation have had a far larger impact on manufacturing employment than imports"

"automation accounted for 85 percent of the net loss in manufacturing jobs during the 2000–2010 period and import competition 13 percent."

"U.S. law subjects imported products from China to exactly the same health and safety standards that are applied to any other imports or to like products made domestically. " 

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