China is being blamed by members of Congress and some labor leaders among others for the loss of good jobs in the United States and our country’s enormous balance of payments (trade) deficit.
Much of the mass media uncritically echoes the views of the economic China bashers on these matters. But the business press, which is more inclined to level with its readers because their money is involved, is more nuanced on the question of jobs, the trade deficit, and the value of China’s currency.
US-China trade is taking place within an economic construct championed and enforced by the United States through the World Trade Organization. China thus plays by American rules, or it would not be allowed in the game.
The rules are based on neoliberal globalization, the contemporary modus operandi of American corporate capitalism and its bodyguard, the US government. Neoliberalism prefers a free trade orientation, deregulation of markets, privatization, and government noninterference. Globalization facilitates the current unprecedented internationalization of business. This is not to say Washington practices what it preaches about neoliberalism: it is quite interventionist on behalf of big business and protective of its trade when thought necessary.
Corporate and financial wealth in the US has one overriding objective: the acquisition of more wealth. Reducing the cost of labor is a key means of increasing profits. Many years ago, owners of factories in New England closed shop and moved to the poorer, non-union South. In the current era, corporate leaders are moving throughout world to take advantage of the lower wages paid in the post-colonial economies of developing Asia, Latin America and Africa. This window of opportunity will not last forever because workers in time are going to demand increasingly better compensation.
American multinationals operate in many such countries in quest of higher profits, and threaten to move elsewhere if wages rise. The largest number have been investing, building production facilities, and subcontracting to thousands of factories in China for over 20 years, all with Washington’s encouragement and understanding that a byproduct of this policy would be an increase in the trade deficit. The move to China, and the great profits that the corporations earn there, was considered worth the higher deficit. As Foreign Affairs magazine commented in 2002:
“U.S. multinational corporations are using China as an export platform in the face of unrelenting global competition. An increasing percentage of the products these affiliates export from China is destined for the U.S. market. These goods count as Chinese exports to the United States — even though they are shipped by US-owned entities — and they contribute to the ever-widening American trade deficit. European and Japanese multinationals are following a similar strategy of manufacturing in China for export, further adding to America’s import bill from that country. Together, the delivery of U.S. goods through affiliates and the increasing use of the mainland as an export base by the world’s leading multinational corporations could inhibit any significant improvement in the American trade deficit with China.”
And of course it has. Last year, the total U.S. trade deficit was $738.6 billion, a 9% decline from 2006 due to the weaker dollar (which increases demand for lower-priced American exports) and slowing economy. Some U.S. politicians convey the impression that China causes the entire deficit but about $400 billion of the 2007 total was because of ever increasing oil imports. By comparison, America’s petroleum import bill was only $48 billion a decade ago. China accounted for $256.3 billion of the U.S. trade deficit in 2007.
At least 30% the “Made in China” goods exported from that country to the U.S. actually is produced by subsidiaries of American multinational companies — and this accounts for a considerable portion of the deficit. (If American companies stayed in the U.S., and paid a decent wage, there wouldn’t be a big China deficit, and many jobs would have remained back home, but corporate profits would be smaller.) Another chunk of the China deficit is from imports of goods manufactured by subsidiaries of corporations from other advanced capitalist economies.
These U.S. and foreign corporations make the big bucks. American consumers of modest income tend to get cheaper prices from items imported from China, in many cases to partially compensate for lower wages or joblessness. China benefits, but gets the blame in Congress and from some unions for “stealing” American jobs and causing the deficit. The China bashers act as though our country’s runaway corporations and a complicit Washington are innocent bystanders, and that it was not in the ingrained nature of capitalism to put profits before the needs of the people.
The anti-Beijing coterie suggests China doesn’t buy American goods, but Commerce Secretary Carlos Gutierrez recently called China America’s “fastest growing market for U.S. exports.” China would import more, but the de-industrializing U.S. now produces far fewer goods than yesteryear, and many of them made in America are simply not competitive. Look at how the mighty U.S. auto industry deflated its own tires. In addition, a range of costly high technology items that Chinese buyers want to purchase are withheld for “national security” reasons.
China’s critics attribute some of the deficit to Beijing’s undervalued currency, the yuan. According to Ramapo College (NJ) Professor Behzad Yaghmaian in early May: “Conceding to American pressures, China relinquished its decade-long policy of pegging the yuan to the dollar in July 2005. The yuan rose by more than 5% in the first year, 12% by the end of 2007, and 14.13% by March 2008. Meanwhile, the trade deficit with China continued to swell by more than 15 percent.”
The U.S. wants China to increasingly strengthen the yuan, but Beijing responds that it must proceed gradually lest its own economy stumble. The stronger the yuan, the tighter the profit margins for a multitude of small and medium export-oriented Chinese companies, causing reductions in wages and layoffs at a time when the Communist Party is already concerned about worker protests.
On June 5, the PRC Customs Administration reported that for the first time in five years “China’s trade surplus is likely to shrink in 2008.” It fell 7.9% in the first four months of this year against a similar period in 2007. One of the factors was a “clear acceleration” in the value of the yuan against the dollar, plus increased global protectionism and a reduction in exports to the U.S. due to the apparent recession. The agency also forecast China’s “imports will keep picking up speed. This will result in a reversal of the swift growth in the trade surplus and in the trade imbalances.” In the wake of the American financial downturn, the European Union has now become China’s largest export market.
A significant problem behind the trade deficit is that the U.S. is simply spending much more money on imports than it has in the bank, and its trading partners (China and Japan mainly) have been lending Washington great sums of money for deficit financing. Much of America’s consumer and government spending is based on debt as well, and it is one of the symptoms of our country’s decline.
As far as jobs and wages for American workers are concerned, big business for the last few decades, has been carrying out a campaign to eviscerate the labor movement, to deprive workers of the fruits of increased productivity, to lower wages and benefits, and to oppose government intervention on the side of the working class/lower middle class and the poor. Shifting jobs overseas and turning the screw ever tighter on American workers at home is what’s causing job loss, not China.
As Business Week wrote a few years ago, “One reason politicians are whipping themselves into a frenzy over China is because it’s an easy way to explain the constant din of layoff announcements that show little sign of slowing.”
Much of America’s industrial base that has not gone abroad for superprofits has failed to keep up with the foreign competition (except in the production and export of weapons of war, where the U.S. is without peer). As progressive writer James Petras wrote a couple of years ago, “China bashing is merely a response to the loss of competitiveness. Nationalist demagogy in a declining global power is a compensatory mechanism.”
Contrary to many of the arguments seeking to blame China for some of the problems afflicting the U.S. economy and American workers, we think such difficulties were generated within our country’s capitalist system itself, compounded by the policies of neoliberalism and corporate globalization.