Reposted from the Economic Policy Institute
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Robert E. Scott | February 10, 2012 | Economic Policy Institute
The U.S. Census Bureau reported today that the U.S. trade deficit in goods and services increased from $500 billion in 2010 to $558 billion in 2011, an increase of $58 billion (11.6 percent). Although the United States had a surplus in services trade, which increased by $33.2 billion (22.8 percent) in 2011, that surplus paled in comparison to the U.S. trade deficit in goods trade, which increased from $645.9 billion to $737.1 billion in 2011 (an increase of $91.2 billion or 14.1 percent).
Increased net imports of crude oil and refined petroleum products were responsible for about two-thirds ($61.3 billion) of the growth of the U.S. trade deficit in goods. Growth of the goods trade deficit in 2011 has slowed the recovery and suppressed domestic job creation, as domestic demand for goods has been absorbed by exporters, particularly those in China and in oil-exporting nations.
The U.S. trade deficit in non-oil goods—a deficit dominated by trade in electronics, autos, auto parts, and other manufactured products—increased from $369.7 billion in 2010 to $399.7 billion in 2010, an increase of $30.1 billion (8.1 percent). The U.S. trade deficit with China, which is dominated by trade in non-oil manufactured goods, increased from $273.1 billion in 2010 to a record $295.5 billion in 2011. This $22.4 billion (8.2 percent) growth in the overall U.S. trade deficit with China was responsible for three-fourths of the growth in the U.S. trade deficit in non-oil goods (conservatively estimated).
According to a 2011 Economic Policy Institute report, the growth in the U.S. trade deficit with China displaced 2.8 million U.S. jobs between 2001 and 2010 alone. One of the most important causes of an increasing U.S. trade deficit with China is China’s illegal manipulation of its currency. As EPI’s Josh Bivens has noted, the U.S. needs a firm and effective set of policies to confront China’s currency manipulation, but the administration and Congress repeatedly have refused to get tough with China.
China is also targeting a range of U.S. industries with subsidies and other illegal trade restrictions, recent reports show. For example, the Chinese auto-parts industry (including domestic and foreign-owned plants in China) has received $27.5 billion in government subsidies since 2001, and China’s central government has committed an additional $10.9 billion in aid through 2020. Up to 1.6 million U.S. jobs in the U.S. auto-parts industry are at risk in the coming decade due the threat of rapidly growing subsidized U.S. imports from China.
China’s illegal currency manipulation and unfair trade policies should be at the top of the agenda when Chinese Vice President Xi Jinping visits next week. Instead, news reports will likely be dominated by a few carefully orchestrated sales of big-ticket U.S. goods to Chinese buyers. We should beware of visitors bearing “gifts.” As noted by Alliance for American Manufacturing President Scott Paul, “China’s economic policies—subsidies, state owned enterprises, intellectual property theft, forced technology transfer, currency manipulation—are now the single largest impediment to job growth in America.” The United States cannot afford to wait any longer to address these policies.
The author thanks Josh Bivens for advice and comments and Natalie Sabadish for research assistance.
“The exchange rate is not the main cause of the U.S. trade deficit with China. The costs of labor, regulation and harassmsent are far lower in China, and U.S. corporations have offshored their production to China in order to benefit from these lower costs.”
Paul Craig Roberts, “How The Economy Was Lost,” 2010, P.103
“The offshoring of American jobs is the antithesis of free trade. Free trade is based on comparative advantage. Jobs offshoring is an activity in pursuit of the lowest factor cost — an activity that David Ricardo, the originator of the free trade theory, described as the betrayal of one’s own country . . .” Ibid, P.155.
Bruce, the exchange rate IS THE PROBLEM but it isn’t just currency. It is all the environmental, labor and economic benefits that a free society makes off of a balance of power in a free society that are not being equalized at the border by the incompetent Trade Representatives that is the problem.
Our standard of living is being arbitraged by a select group of the elite in our country. It is the rise of these oligarchs who would betray our country that is the problem.
I just saw a segment on cigarette lighters on the news this morning. It seems a man lost his brother to one of these malfunctioning lighters. Europe has standards on lighters and the U.S. has “voluntary” industry standards. A Chinese company is selling these dangerous lighters in the U.S. The man who lost his brother did sue and won in court but the judgment can not be enforced against this Chinese company. U.S. companies making such products would surely face the legal costs plus have to pay for these judgments. Our U.S. Trade Representative is not enforcing our standards on foreign competition.
Trade is never just about currency or lower costs. It is the whole package. A group of elites in this country have found a way to cheat the nation for their own benefit. They are paying off the ones that need to be paid off and using the leverage they have in the propaganda war with the “free trade” mantra. I would like to re-label a few federal prisons as “elite prisons” (this is China’s domain) and send some of these elites and their henchmen who are selling our country and our economy out to be “free residents” there for a period of time.
Tom T.
Very well stated, Tom. And a timely reminder of the folly of focusing on one aspect of China’s unfair advantages. Especially when action on that aspect, Chinese currency reform, is not really within our control. I am afraid that much valuable time and resources of domestic manufacturing interests have been frittered away in the vain attempt to secure Chinese Yuan revaluation over the last decade. Meanwhile, new FTA’s with Korea and other countries sail through Congress. And lousy Congressmen and Senators who support offshoring keep getting reelected with little organized opposition.
I guess I would like to say one thing about all this griping about China. The gripes are real but the responsibility for what China is getting away with is not entirely China’s fault. All of the blame can be squarely placed on our nation’s political leader’s inability to govern worth a darn.
China is just taking advantage of what our sorry politicians allow them to take advantage of.
Tom