As we dive head first into the holiday season, it’s a good time to reflect and have a serious discussion on the United State’s trade deficit, particularly with China. Anyone who has been in an American supermarket, shopping mall, or any other type of retail establishment (i.e. Wal-Mart) has probably noticed that most, if not all, of the commodities and goods on the shelves were made in China, or some other Asian country. For those proponents advocating the “vote with your dollar” approach to economics, it’s hard (if not impossible) to support American manufacturing when it is almost completely nonexistent. While washing machines or dryers may not be popular gifts this holiday season, I challenge all of you to find an American manufacturer that produces a quality machine. Much of the reason for the lack of American manufactured products on the shelves of retail outlets throughout the U.S. is due to Chinese economic policies and the attractive climate it has created for businesses to manufacture within its borders. Any serious discussion of American economic policy must address the ever-expanding trade deficit the U.S. has with China. Otherwise, American manufacturing will never return to the U.S. and the American consumer will forever have limited retail options.
Trade deficits remove and eliminate jobs. They occur when a country’s balance of trade favors imports over exports (i.e. when a country buys more than it sells). A recent Economic Policy Institute report determined that “net job displacement since China entered the World Trade Organization in 2001 cost the economy $37 billion in lost wages in 2011 alone.” The same report concluded that we have lost over 2.7 million U.S. jobs to China since 2001, with 2.1 million (76.9%) of those in manufacturing.
What has caused the substantial ($315 billion) U.S. trade deficit with China? There have been multiple factors – currency manipulation, cheap labor (violating a plethora of human rights in the workplace), little to no pollution regulation, and intellectual property infringement.
Much of the mass exodus of outsourcing to China is due to its currency manipulation. China manipulates its currency by taking the value of the yuan to that of the U.S. dollar at a rate far below market value. This provides China with a 25 – 40 cent advantage on every U.S. dollar, effectively creating a huge subsidy for Chinese exports to America and an equally large tariff barrier for American exports to China. This results in more jobs in China and fewer jobs in America because China can sell goods cheaply in America due to the subsidy they receive from their currency, and American goods consequently become more expensive in China due to its undervalued currency. The Chinese government has openly acknowledged this type of manipulation, and has advocated for it to protect Chinese companies and jobs. Unfortunately, Americans have suffered in the process.
The second primary reason for the U.S. trade imbalance with China is its regulation of labor (or I should say – lack thereof). There is no such thing as the National Labor Relations Board, the Occupational Safety and Health Act, Workers Compensation, or a Labor Union in China. In fact, anyone who tries to start a labor union will go to prison. And speaking of prison, each member of the forced labor camps in prison is responsible for meeting a quota during their 12-16 hour day. If they do not meet it, prisoners could face solitary confinement. Many of the gifts American consumers bought this Christmas from Wal-Mart are products from these forced labor camps. How is America supposed to compete with a country that does not force companies to internalize the costs of protecting their workforce?
Another large part of China’s competitive economic advantage stems from environmental neglect. This has created one of the most deteriorated environments in the world. Less than 1% of the urban air in China meets the air quality standards set by the European Union. The century of regulatory enforcement to protect society from harmful pollutants or substances in America is nonexistent in China. Thus, companies are able to enter the Chinese market, and manufacture products in a regulatory state similar to what America had in the early 1900s. Most troubling, however, are the “cancer villages” throughout China where evidence suggests that cancer clusters have been created due to a high percentage of toxic metals in the soil. These metals are the remnants from manufacturers who are not forced by any type of regulation to clean or remove any harmful environmental contaminants that resulted from production. This type of unregulated manufacturing pollutes not only the soil, but the air and water in China as well. While companies are permitted to pollute at will in China, they’re able to obtain an incredible cost advantage over any American competitors who must adhere to environmentally conscious regulations. Pollution control costs are exorbitant for U.S. companies.
The final primary reason for the U.S. trade deficit with China is its infringement on intellectual property. The Chinese are notoriously known for stealing the blueprints of any piece of American high-technology they can get their hands on. Ask Google. After the theft of Google’s source code by the Chinese government, Google lost its market share in China to a local rival and was essentially sanctioned throughout the country. The moral of this story is whenever a company tries to compete with a Chinese rival on the national or global stage, it must remember that it’s competing with the Chinese government too. Whether its assistance via export subsidies or intellectual property infringement, the Chinese government has proven it will stop at nothing to ensure that it continues to sustain growth in the global economy regardless of the costs.
If Americans really start to take a look at China’s unfair practices, they might start to consider an alternative approach to trade with this cheating country. These practices combined with the millions of human rights abuses, the plight of Tibet, and the undermining of religion and democracy throughout the country, paint a melancholy picture of a totalitarian regime willing to compete at all costs. Until U.S. politicians, business leaders, and consumers start to combat these unfair trade and human rights practices, the American people will be celebrating Christmas with the exchange of Chinese products from now into the near future.
Merry Chinese Christmas, everyone.