China-US relations

US trade deficit with China costs millions of American jobs, says labour-affiliated think tank

  • The job losses have been concentrated in the manufacturing sector, including industries in which the US has traditionally held a competitive advantage
  • The trade deficit grew the most in the computer and electronic parts industries, according to the union-backed Economic Policy Institute
PUBLISHED : Wednesday, 24 October, 2018, 12:02am
UPDATED : Wednesday, 24 October, 2018, 10:22pm

The US trade deficit with China, which has ballooned since 2001, is responsible for the loss of millions of American jobs, according to a new study by a think tank affiliated with the labour movement.

More than 3.4 million US jobs have been eliminated since Beijing joined the World Trade Organisation 17 years ago, with over US$100 billion added to the trade deficit since 2008, according to the report published on Tuesday by the Economic Policy Institute in Washington DC.

“The growth of the US trade deficit with China .... almost entirely explains why manufacturing employment has not fully recovered along with the rest of the economy”, wrote the researchers, adding that about 1.3 million of the job losses have occurred in the last 10 years.

The development “has contributed heavily to the crisis in US manufacturing employment”, according to the report. It said the job losses were concentrated in the manufacturing sector, including industries in which the US had traditionally held a competitive advantage, because of the trade deficit.

The think tank, which describes itself as non-profit and non-partisan, was created in 1986 to “focus on the economic condition of low- and middle-income Americans and their families”, according to its website. The chairman of its board of directors, Richard Trumka, is president of the largest US federation of labour unions.

As a result of the deficit, the US “is piling up foreign debt, losing export capacity and facing a more fragile macroeconomic environment”, wrote the researchers, led by Robert Scott and Zane Mokhiber. The US trade deficit with China has cost jobs in every congressional district in all 50 US states, and grew the most in the computer and electronic parts industries, the report said. Other hard-hit sectors include apparel, electrical equipment and appliances.

The study’s findings could give the economic data to undergird Donald Trump’s trade offensive against China, giving credence to his criticisms that China had been engaged in what he calls “unfair practices”, reinforcing his demands that the Chinese materially change how they conduct commerce with the US.

However, it contradicts other studies on the causes of America’s unemployment, such as the 2017 report by the Boston Consulting Group which found that “the reshoring of factory work from China and other major trading partners has contributed to the increase in direct manufacturing jobs of 400,000 and to the rise in support jobs of 1.2 million since 2010.”

“The technological advancement that could change employment is very difficult to gauge,” said Alicia Garcia Herrero, chief Asia-Pacific economist at the French bank Natixis, adding that she had decided not to publish an earlier study of the correlation between Europe’s job losses and the region’s trade gap with China. “My unpublished study said trade deficit with China cost Europe one million jobs, and it certainly makes a sensational headline, but it’s also not fair to China.”

The Trump administration fired the first salvo of its trade war with China earlier this year with threats of tariffs on Chinese imports. In response, China had announced countervailing tariffs. Negotiations between the two sides to wind down the trade war have been at a stalemate since July.

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But it’s not just direct trade that has raised the EPI’s concerns. The think tank’s researchers also identified Chinese trade policies that have long concerned observers on both sides of the aisle.

“China’s trade-distorting practices, aided by China’s currency manipulation and misalignment and its suppression of wages and labour rights, resulted in a flood of dumped and subsidised imports that greatly exceeded the growth of US exports to China,” they wrote.

The trade imbalance’s negative impact on wages was also singled out. The report said it had resulted “in a net loss to workers as they move from higher-paying jobs in import-competing industries to lower-paying jobs in exporting industries”.

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The researchers said “the US-China trade relationship needs to undergo a fundamental change”.

The two nations are “locked in destructive, interdependent economic cycles, and both can gain from rebalancing trade and capital flows”, the study said.

With reporting by Sidney Leng in Hong Kong