US Trade with China: More Good than Harm by Far | CHINA US Focus

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US Trade with China: More Good than Harm by Far

Zhou Shijian
February 29, 2012
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Recently, the Wall Street Journal carried an article entitled, “How Much Harm Chinese Goods Can Do to America?”, relating three American researchers’ assumption that the import of Chinese goods would wreak far more economic havoc on America than imagined. They even queried the validity of the basic international trade theory —the comparative advantage theory. What on earth is the truth?

The bilateral trade has developed extremely fast since China and the United States formally established diplomatic relations. According to the official statistics of America, the U.S.-China trade has grown from $2.37 billion in 1979 to $456.8 billion in 2010, a 193-fold increase. A growth of this kind is unimaginable without the presence of mutual benefit.

The U.S.-China trade reached $456.8 billion in 2010 accounting for 14.3% of the U.S. foreign trade, $3190.2 billion in total. The U.S. imports from China (including HK transit) in the same year reached $364.9 billion, accounting for 19.1% of the U.S. total imports, $1912.1 billion. The U.S. exports to mainland China and HK reached $118.5 billion, accounting for 9.3% of the U.S. total exports of $1278.1 billion. China and the United States have become crucial “strategic trade partners” with mutual benefit and interdependence.
 
As China and U.S. are respectively situating in two different stages of modernization process, they are strongly complementary in terms of industrial structures. Their complementarities of comparative advantages in the bilateral economic and trade cooperation are the largest and broadest international division of labor and cooperation in the world today. The United States set out the third industrial adjustment in the early 1980s that led to a mass shift of labor-intensive industries to abroad. It coincided with the onset of reform and opening-up policy in China that absorbed foreign capitals and developed a processing trade both in a massive scale.

To take shoe-making industry as an example, in 1976, 53 of every 100 pairs of shoes on the U.S. shoe market were made by American enterprises, while it fell to 22 in 1986, 11 in 1996, and only one and a half in 2006. Now 98% of shoes worn by Americans are of imports, of which some 80% are made in China. The most of the Chinese exports to America are inexpensive daily consumer products though good in quality. This meets the demand of American market, alleviates inflation in America, and provides American adjustment of industrial structure and economic development with necessary supplement.

According to the survey of Morgan Stanley, China’s trade surplus with U.S. were $229.2 billion between 1996 and 2003. Those good though inexpensive goods have saved over $600 billion for American consumers, lowered cost for American producers and helped America control inflation.

International trade is based on complementarities of comparative advantages. A Chinese worker earns 1.5 dollars per hour, while it is 18-20 dollars for an American worker. The labor-intensive product like shoes will be stunningly high in price if they are made by American workers. American advantage lies in high technology. China has purchased over 600 jumbo jets from Boeing since 1980. A hundred million dollars worth of every 747 jumbo jet provided America with many new jobs. On the part of China, it will sell 50 million pairs of shoes in exchange for just one jumbo jet. China is not only the largest exporter to the United States, but also the fastest growing market for U.S. export. China was the 11th largest export market for America in 2000 and took over Japan as the third largest in 2007. According to the United States-China Business Council, the U.S. export to China had increased 465% from 2000 to 2010; its export to other partners except China increased only 56% on average; of which the export to Japan had dropped 7.4%. In October 2010, the U.S. Department of Commerce designed a blueprint to double export to the top 10 export partners between 2010 and 2014, to increase export to Canada by 2.4% per year, to Mexico by 3.7%, to Japan only by 0.4%, while to China by 16.7% (actually, U.S. export to China had increased by 32% in 2010). With this view, Obama’s five year plan to double export will hardly succeed without the big market of China. American scholars had better to calculate carefully how many jobs can the fast growth of U.S. export to China create for America and they should take a look of whether China-U.S. trade can do more harm than good or do the other way around to America?!

Furthermore, as the bilateral trade fast increases, so expands the U.S. investment in China. From 1980 to the end of June 2011, the U.S. actual investment in China had reached $66.9 billion, with over 60,000 enterprises setting up. According to the 2011 Business Climate Survey Report conducted by the American Chamber of Commerce in the People’s Republic of China (AmCham-China) in March 2011,  85 percent of American companies in China reported an increase in revenue in 2010. It must be pointed out that 40% of Chinese exports to America are produced in China by American companies. In other words, the revenues of the exports to America produced by American enterprises in China are counted as Chinese trade surplus with America, while the money are remitted to America by American enterprises. In this case, the U.S. Congress and government are untenable to push for RMB appreciation in excuse of American trade deficit with China.

The financial crisis erupted in America in 2008 had evoked the worst post-war American recession with a sluggish as well as painful recovery, and led to a high unemployment rate and poverty rate. But that has nothing to do with China-U.S. trade. The former U.S. Ambassador to China Stapleton Roy had told this author that this crisis had made Americans clear that the U.S. economic difficulty is caused by financial crisis and had nothing to do with RMB exchange rate.

When it comes to the question how large the harm the American financial crisis has inflicted on China, few scholars seem to have researched seriously.

 

Zhou Shijian is senior researcher at the Center of American Studies, Tsinghua University

 

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