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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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