China's Impact on the U.S. Trade Deficit

According to data recently released by the U.S. Department of Commerce, China was responsible for over three-fourths of America’s enormous trade deficit in manufactured goods with the rest of the world in the first half of 2009.   

Through June, the U.S.’s trade deficit in manufactured goods was $173 billion.  Of that, China accounted for 78.5 percent of that deficit, or $101.8 billion worth of manufactured goods.  

 “The knowledge that China, America’s largest creditor, now accounts for more than three-quarters of the U.S. trade deficit in manufactured goods should alarm President Obama and the Congress," said American Manufacturing Trade Action Coalition (AMTAC) Executive Director Auggie Tantillo in a press release.  

In June alone, America’s trade deficit with China in manufactured goods totaled $18.43 billion.  During the month, the U.S. imported $23.98 billion worth of Chinese manufactured goods while exporting just $5.55 billion worth of manufactured goods to the Asian nation.   

What’s more, the U.S. trade deficit with China in manufactured goods nearly matched the U.S. trade deficit in oil and gas during the first half or 2009.   

“Running a trade deficit for natural resources that the United States lacks is something that cannot be helped, but running a massive trade deficit in man-made products that America easily could produce itself is a choice – a poor choice that is bankrupting the country and responsible for the loss of millions of jobs,” Tantillo said.  

In the period between 2001 and 2009, the U.S. ran a cumulative $3.81 trillion trade deficit with the rest of the world, of which China accounted for $1.58 trillion of that deficit.   

"Trade deficits cause lost production; lost production causes job losses. They are linked,” Tantillo said.  

According to the AMTAC, since 2001, America has lost 5.3 million manufacturing jobs due to its unsustainable trade deficit.  Of those job losses, China is largely responsible.   

Since entering the WTO in 2001, trade with China has resulted in the loss of 2.3 million jobs through 2007, according to the Economic Policy Institute. In 2006 alone, the trade gap with China resulted in the loss of 366,000 American jobs. Those fortunate enough to retain their jobs witnessed their annual earnings decrease by roughly $1,400. American workers are put in direct competition with one another as more and more employers look to offshore production to nations with lower wage rates.

Those jobs losses have affected each and every sector of the economy in both white and blue-collar workers. Over that time the U.S. has lost 561,000 jobs in computer and electronic products, 153,000 in apparel and accessories, 139,000 in administrative support services and 128,000 in professional, scientific and technical services.  

In all, those displaced workers lost an average of $8,146 annually - a total of $19.4 billion - as they moved into lower paying jobs.  

Those job losses can be directly attributed to China’s rapidly growing trade surplus with the U.S., maintained by the systematic manipulation of the Chinese yuan. By purposely undervaluing their currency, they subsidized exports - some estimates put this subsidy at nearly 30 percent.  Coupled with China’s VAT tax advantage and the numerous other mercantilist practices they utilize, China has been able to systematically dismantle America’s manufacturing base and put the nation deeply in debt - conveniently to China.   

“With private consumption driving more than 70 percent of U.S. Gross Domestic Product (GDP) and with U.S. consumer spending unlikely to grow substantially in the near term because Americans are borrowed to the hilt, the only way for the United States to create badly needed jobs is to start producing more of what we consume,” Tantillo said in the press release.  

In order to do so, American policymakers must reexamine the failed trade policies that have gotten the country into the shape that it is currently in.  That will require the U.S. to address the inequities of the VAT, China’s currency manipulation, artificial investment barriers in Japan and many other policies that have allowed America’s manufacturing base to be dismantled. 

“The U.S. economy did not collapse in a day and nor can it be fixed in a day. For the United States to achieve sustainable long-term economic growth, it must tear down its broken trade policy and replace it with a new more competitive structure that encourages domestic manufacturing instead of its offshoring,” he concluded.  

Source TradeReform.org:

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