Debate in US over trade deficit with China heats up

Trade gap with China brings demands for action, though some warn measures could be counterproductive as jobs are being created

PUBLISHED : Thursday, 20 March, 2014, 10:07am
UPDATED : Friday, 21 March, 2014, 5:19am

A chorus of voices in the United States has been calling for tougher trade action against China, alleging imports from the country are slashing jobs in the US.

But other analysts say punitive US trade measures against China would be counterproductive and that growing Chinese investment in the US is, meanwhile, creating jobs.

China is the second-biggest trading partner of the US, behind Canada, and the US was the largest trading partner of China last year, according to official data.

Recent academic research shows the growth of Chinese exports to the US had resulted in job losses in the US, Larry Qiu Dongxiao, an economics professor at the University of Hong Kong, told the South China Morning Post.

"However, China is not the only country to be blamed," Qiu said. "The international production structure is responsible for this."

Many countries, including Japan, export intermediate goods to China for assembly, and the final goods are shipped from China to the US, Qiu said.

"Without those countries' participation, China would not be able to export that much," he said. "So all these countries together should be blamed, not just China."

Last month, the US-China Business Council urged the US and China to complete negotiations over the Sino-US Bilateral Investment Treaty this year.

Under this treaty, Chinese investments in the US would receive protection and vice versa, while both countries would adopt more market-oriented policies towards investment.

However, Robert Scott, director of trade and manufacturing policy research at the Economic Policy Institute, a US think tank, said the US should not negotiate the treaty with China, but be tougher in enforcing US trade laws against China.

The growing US trade deficit with China eliminated 2.9 million US jobs between 2001 and 2012, of which more than three-quarters were in manufacturing, Scott said at a hearing of the US-China Economic and Security Review Commission in Washington on February 21. The panel advises the US Congress on Sino-US relations.

Since 2001, the US trade deficit with China has nearly quadrupled, said Elizabeth Drake, a partner at Stewart and Stewart, a US law firm. Drake criticised the US government for not taking tougher trade action against China and urged US policymakers to create tougher trade enforcement mechanisms against the country.

Dan DiMicco, former chairman and former chief executive of Nucor, the largest US steelmaker, said: "No American company has the same access to China's market that it has to ours. We can continue to be played for fools, or we can fight back."

In 2000, China had the same annual steelmaking capacity as the US, at roughly 100 million tonnes, DiMicco said.

"Today, China's steelmaking capacity is nearly one billion tons. They went from a net steel importer to the largest exporter in a matter of years," he said.

DiMicco blamed China for depressed prices and lost sales suffered by US steelmakers.

China's growing share of US imports coincided with a drop in US manufacturing employment as a proportion of total employment from 14.4 per cent in 2000 to 10.1 per cent in 2010, said Philip Levy, senior fellow at the Chicago Council on Global Affairs, a US think tank.

But US manufacturing's share of employment had been 24.8 per cent in 1973, and much of the decline since then occurred before the rise of Chinese manufacturing, Levy said.

China's rise as an exporter to the US was achieved not at the expense of US manufacturers but by displacing other Asian countries, he said.

If there was a decrease in US imports from China, it would have to be offset by an increase in imports from other countries, or a decrease in US exports, or a decrease in the amount that the US borrows from abroad, all of which would be detrimental to the US, Levy warned.

He cited the Fukushima nuclear disaster in Japan in 2011, which resulted in the closure of some factories making parts in Japan. This resulted in the closure of some US factories that relied on Japanese parts.

Hence, a strategy to limit Chinese exports to the US would "inflict serious damage on US consumers and producers", Levy said.

Willy Shih, a professor at Harvard Business School, said: "We need to learn from history and not delude ourselves into thinking that because [the Chinese] are not playing fair, in the end justice will prevail."

Shih cited the rivalry between US plane maker Boeing and European Union plane maker Airbus. Previously, Boeing had complained about state subsidies enjoyed by Airbus, he said.

But Airbus kept introducing innovative products and became competitive despite being an EU state-owned enterprise, Shih said.

"Constantly blaming state aid or discounting Airbus's capability got in the way of Boeing recognising [its] own competitive shortcomings, something [it] paid for dearly," he said.

"We cannot let Chinese state capitalism distract ourselves from ensuring our own global competitiveness."

The US has much to gain from the global emergence of Chinese companies, including employment generation and tax revenues, said Joel Backaler, a director of the Frontier Advisory Group.

Last year, Chinese firms accounted for more than 70,000 jobs in the US, an eightfold increase from 2007, owing in part to Shuanghui International's US$4.7 billion acquisition of US pork producer Smithfield Foods, said Rhodium Group, a US consultancy.

"If the US is seen by Chinese firms as unwelcoming to Chinese investment, [the US] will miss a tremendous opportunity to benefit from Chinese investment," Backaler said.