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Jobs, Jobs, for both China and the US

He Weiwen, Co-director, China-US/EU Study Center, CAIT
March 1, 2012
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China-US trade in 2010 and 2011, when the world economy experienced a hard, vulnerable recovery from global financial crisis in 2009, witnessed solid job creation results in both China and the US.

Two way trade and investment creates jobs in both countries

According to China Customs data, total China-US trade hit $446.7 billion, an increase of 16% over 2010, and 49.7% up over 2009.  China's exports to the US increased from $ 220.8 billion in 2009 to $ 324.5 billion in 2011, or 47.0% up. Her imports from the US increased from $77.4 billion to $122.0 billion, or 57.6% up. More than 10 percentage points higher than her exports.

According to the US official data, US-China two way trade reached $460.8 billion in the first 11 months of 2011, or $ 502.7 billion annualized, an increase of 37.8% over 2009, with her exports to China grew 47.8%,much faster than her imports from China ( 34.6% up).

Measured by the estimate that roughly 600 jobs could be created by each $ billion exports, the net increase of China's imports from the US during the past two years, which is $44.6 billion has created 267,600 jobs in the US. The business deals reached during President Hu Jintao's US visit a year ago could create another 230,000 jobs in America.

The same is true that China's export increase ($ 103.7 billion) to the US also created numerous jobs in China, thus contributed China's economic growth.

The past two years also witnessed a sharp increase in China's direct investment in the US. While China official statistics put the volume at $ 1.31 billion for 2010 and $ 1.1 billion in 2011, estimates by a study report of Asia Society put the figure at $ 5.9 billion for 2010 alone. Assuming that each billion dollar direct investment creates 6,000 jobs, as applied by some studies in the US, China's direct investment in the US could create 35,400 jobs in 2010 alone. Meanwhile, US direct investment in China, totaling $5.39 billion in the past two years, could create 32,300 jobs in China.

"Imports cut jobs" is not True

One of the key issues in China-US trade disputes is whether America job loss is caused by huge trade deficits with China, and further whether China has been following a mercantilist policy to keep flooding her cheap products in the US markets, at the cost of the American jobs. The common position of many Americans, from Congressmen, labor, to think tanks, is a clear answer of YES. USW recently announced a protest plan on the reason that auto parts imports from China increased tenfold in the past ten years, resulting in heavy job losses in the Great Lakes Area. A more typical expression in the report by EPI, entitled < China's Unfair Trade Cuts American Jobs>, released on March 23, 2010.

The report's computing is based on the assumption that all exports create jobs and imports cuts jobs. Thus all trade surpluses result in job increase and trade deficits in job losses. The report then articulate the numbers in different sectors and all 50 states, with the final conclusion that China cost 2.41 million US jobs in 2001-08. Other experts added another 400,000 job losses in 2009-2010, by the same computing.

However, this approach itself is very much arguable. Because it has neglected a common sense: Imports also create jobs.

Just take auto parts import increase from China. During the first 11 months of 2011, US auto and parts imports from the world hit $ 232.33 billion (China accounted for around 4% only, by USW figure), an increase of $ 26.85 billion, or 13.1% over a year ago.

The insurgent increase of auto and parts imports reflected a recovery in US automotives industry and market. Auto sales in Jan. 2012 were 1,187,164 units, 9.0% up over Jan. 2010. Auto and parts retail sales in 2011 $817.86 billion, 9.9% higher than in 2010. As a result, employment in auto and parts retailers and dealers, as well as gas stations combined increased from 3,524,400 in Jan. 2010 to 3,621,700 in Jan. 2011, or 97,300 new jobs added in the 12 months.

We should not neglect the other side. China's auto and parts imports from the US have grew much faster than her exports to the latter. During Q1-3 of 2011, the volume was $ 5.97 billion, or $ 7.95 billion, while it was only $ 292 million in 2003. US auto and parts export to China shot up 19.5 folds just in 8 years. However, there is no such a thing as complaining job losses in China. as it actually created new jobs of auto dealers, 4S shops , after-sale M& R, car insurance, etc.

No Direct linkages between US Employment and Trade Deficits

Interesting enough, employment in goods producing sector has had the highest increase over the past year, although goods trade deficits expanded both with the world and China.  The employment growth in service sector, mostly happen in goods service industries (trade, warehousing and goods moving, retail, etc.).

The actual non-goods service sector showed a much worse performance, with information sector fell by 1.72%, and finance sector barely maintain a positive growth, while government employment was down by over one percent.  Ironically, US service sector saw a huge surplus increase over this time frame.

Are US jobs taken away by trade deficit? The observation also gives a clear answer: NO.

During 1999-2000,US goods trade deficits grew sharply. However, employment grew equally sharply. Her deficit was down in 2001, with employment also down. During the subsequent years, trade deficits started to widen again,. The employment situation, however, improved instead of worsening.

Trade deficits again expanded in both 2007 and 2008, with a slight decrease of employment. The latter deteriorated remarkably in 2009, with trade deficit actually narrowed.

Hence, no direct linkages could be found between trade balance and employment, either by current or historical studies.

Job Creation for both China and US: a Constructive Approach

There are plenty avenues to follow. A good choice is expand two way direct investments. China's direct investment volume in the US, according to different sources of information, will keep fast growth over the next five to ten years. It is estimated that the annual volume could reach $ 10 billion by 2015, and still higher by 2020. An accumulated $ 100 billion in the US will create 600,000 jobs.

Similarly, US direct investment in China, hovering around $ 3 billion per year, could also rebound, pushed by strong economic growth and market expansion, thus will also create tens of thousand jobs in China.

China-US two way tourist travels have also recorded fascinating growth over the past 2 years. Chinese tourist arrivals in the US could easily top 2 million in a couple of years, and may hit 7 million by 2020, a tenfold increase in 10 years. If 5% of China's middle class residents travel to the US in 2020, the number will be 15 million, even dwarf our most optimistic anticipation.

Each one million Chinese tourists added will create:
---200,000 hotel rooms, and thus 150,000 new jobs;
---2 million new air flight seats;
---$ 20 billion retail sales ($ 2000 per tourist, according to a conservative estimate), or add 0.43% of current total US retail sales. Based on current employment size of 14.74 million in retail sector. Chinese tourists could create 63,382 jobs in the US.

The above estimates might not be accurate, nor complete. It shows that, however, China and the US share tremendous common interests. As long as we work together in a constructive, far-sighted way, great opportunities will be on the horizon, benefiting our two great peoples.

 

He Weiwen is co-director of China-US/EU Study Center, China Association of International Trade, and former economic and commercial counselor at Chinese Consulates General in San Francisco and New York

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