|
|
|
|
China trade costs US 1.5 million
jobs
By Robert E Scott
The rise in the United States' trade
deficit with China between 1989 and 2003 caused
the displacement of production that supported 1.5
million US jobs. Some of those jobs were related
to production or services that ceased or moved
elsewhere; others were jobs in supplying
industries. These jobs reflect the effect on labor
demand - in lost job opportunities - in an economy
with a worsening balance between exports and
imports. Most of those lost opportunities were in
the high-wage and job-hemorrhaging manufacturing
sector. The number of job opportunities lost each
year grew rapidly during the 1990s and accelerated
after China entered the World Trade Organization
(WTO) in 2001. The loss of these potential jobs is
just the most visible tip of China's impact on the
US economy.
During the 14-year period
covered by this study, there has been a
significant shift in the kinds of industries
suffering job displacement, a shift that runs
counter to initial expectations. Where the largest
impact was once felt in labor-intensive,
lower-tech manufacturing industries such as
apparel and shoes, the fastest growth in job
displacement is now occurring in highly skilled
and advanced technology areas once considered
relatively immune, such as electronics, computers,
and communications equipment.
Major
findings of this study
The loss of job-supporting production in the
United States due to growing trade deficits with
China has more than doubled since it entered the
WTO in 2001. The 1.5 million job opportunities
lost nationwide are distributed among all 50
states and the District of Columbia, with the
biggest losers in numeric terms being California
(199,922), Texas (99,420), New York (81,721),
Pennsylvania (69,822), Illinois (69,668), North
Carolina (62,698), Florida (60,026), Ohio
(58,094), Michigan (50,991) and Georgia (46,848).
The 10 hardest-hit states, as a share of total
state employment, are Maine (14,951, or 2.47%),
Arkansas (19,123, 1.67%), North Carolina (62,698,
1.65%), Rhode Island (7,548, 1.56%), New Hampshire
(9,443, 1.53%), Indiana (43,533, 1.50%),
Massachusetts (46,463, 1.46%), Wisconsin (39,668,
1.43%), Vermont (4,211, 1.41%) and California
(199,922, 1.39%).
China's exports to the US of electronics,
computers and communications equipment, along with
other products that use more highly skilled labor
and advanced technologies, are growing much faster
than its exports of low-value, labor-intensive
items such as apparel, shoes and plastic products.
Consequently, China now accounts for the
entire US$32 billion US trade deficit in
advanced-technology products (ATP).
China is also rapidly gaining advantage in
more advanced industries such as autos and
aerospace products.
China's entry into the
WTO was supposed to provide openings for a
sufficiently rapid growth in US exports to reduce
the trade deficit with China. While the export
growth rate has increased since 2001 (from a very
small base), the value of those exports has been
swamped by a rapidly rising tide of imports. The
WTO is a free-trade and investment agreement that
has provided investors with a unique set of
guarantees designed to stimulate foreign direct
investment and the movement of factories around
the world, especially from the US to low-wage
locations such as China and Mexico.
Furthermore, no protections were contained
in the core of the agreement to maintain labor or
environmental standards. China's refusal to
revalue its exchange rate despite enormous demand
for its currency is also a major contributor to
the growth of the US trade deficit. Thus the WTO
and the broader process of globalization have
tilted the economic playing field in favor of
investors and against workers and the environment,
resulting in a race to the bottom in wages and
environmental quality.
Dissecting trade
and employment flows
An analysis of the
effect of trade on the US economy begins by
considering the impact of both imports and
exports. If the United States exports 1,000
computers to China, many American workers are
employed in their production. If, however, the US
imports 1,000 computers from China rather than
building them domestically, then a similar number
of Americans who otherwise could have been
employed by the office-machine industry and its
suppliers will have to find other work.
Hence increases in exports support
domestic employment while increases in imports
displace domestic production that could have
supported more jobs in any given sector. Some
analysts examine only the benefits of growing
exports to the economy, while ignoring the role of
imports. This is especially true at the state and
metropolitan level, because the US Census Bureau
generates a series of reports on exports from
these regions. No comparable statistics on
domestic production displaced by imports are
available from the US government. This report is
designed in part to begin filling that gap with
estimates of the employment effects of imports and
exports from China at the state level.
Overview
US exports increased
from $5.8 billion in 1989 to $26.1 billion in
2003, a fourfold increase. Imports rose from $11.9
billion to $151.7 billion in the same period, a
12-fold increase on top of a base that was already
twice as large as exports. As a result, the
US-China trade deficit increased $119.5 billion, a
20-fold increase. The rate of growth of US trade
with China has accelerated since 1989. Between
1989 and 1997, US imports from China grew an
average of $6.4 billion per year while exports
increased about $1 billion per year. Thus the
trade deficit widened by $5.5 billion per year, on
average, in this period.
Between 1997 and
2001, import growth increased more than 50% (to
$10 billion per year) while export growth picked
up slightly (to $1.4 billion), and the trade gap
expanded by $8.6 billion per year. Between 2001
and 2003, import growth jumped to $25 billion per
year, a 150% rise in only four years. Exports grew
rapidly, but not enough to offset the explosion in
imports, so deficits increased, on average, $21
billion per year in 2002 and 2003, and these
figures were restrained by the 2001 recession. The
effect on the US economy from trade trends with
China has clearly jumped on to a different plane.
The employment impact of a change in trade
is determined by its effect on the trade balance,
the difference between exports and imports at the
detailed sectoral level. Ignoring imports and
counting only exports is like balancing a
checkbook by counting deposits but not
withdrawals. The officials, policy analysts and
business leaders who ignore the negative effects
of imports and talk only about the benefits of
exports are engaging in false accounting.
Between 1989 and 2003, the growth in US
exports to China created demand that supported
199,000 additional US jobs. In the same period,
the growth of imports displaced production that
could have supported an additional 1,659,000 jobs.
As a result, growth in the US trade with China
eliminated a net 1,460,000 domestic job
opportunities in this period.
Manufactured
goods make up the vast majority of the United
States' trade with China. In 2003, 79% of US
exports to China were manufactured goods, as were
99% of imports. However, only 40% of the jobs
supported by growth in exports and 79% of the jobs
supported by growth in imports were in
manufacturing in the period between 2001 and 2003.
The differences between these two shares (29% for
exports and 19% for imports) reflect differences
in the relationships of the industries involved
with production that supports jobs in sectors such
as transportation, utilities, services and
government.
Some economists reject the
general notion that growing trade deficits can
cause a net loss of job opportunities. Their most
common argument is that employment levels are
determined by macroeconomic policies such as
monetary and fiscal policies and, most relevant to
trade, exchange rates, and that, in the long run,
the economy is usually at full employment. In
fact, when the economy is operating at full
employment, as in the late 1990s, growing trade
deficits affect the distribution of jobs rather
than the overall number of jobs in the economy.
Growing trade deficits resulted in less employment
in manufacturing and more jobs in non-traded goods
such as services, retail trade and construction.
In the long run, monetary and fiscal
policies are usually adjusted to maintain full
employment. If jobs in traded-goods industries pay
better than the alternatives for workers affected
by trade deficits, then the most important effects
of growing trade deficits will be on the
distribution of wages and incomes. Numerous
studies have borne this out, demonstrating the
significant negative effects that trade has had on
the distribution of income over the past few
decades of variable but generally growing trade
deficits. In addition to offering higher wages for
workers with comparable education and skills,
manufacturing jobs also tend to offer better
benefits.
On the other hand, the US
economy has operated well below potential output
since 2001 because total employment growth has
failed to keep up with growth in the working-age
population. In this environment, the persistence
of large and growing trade deficits has had a
depressing effect on the overall level of
employment, as well as its distribution across
major sectors of the economy. The growth in the
global US trade deficit reduced manufacturing jobs
by 1.78 million between 1998 and 2003 alone. In
2003, the manufacturing sector represented only
11.2% of the 129.93 million total US jobs. But for
the loss of these jobs in manufacturing and in the
economy as a whole, the manufacturing share of US
employment would have been 1.4 percentage points
(12.3%) higher in 2003 than it actually was.
China's entry into WTO
The claim
that new trade agreements will create jobs and
raise incomes in the US has frequently been made
by supporters of these agreements in both
Republican and Democratic administrations.
President George W Bush called the Senate's 2002
approval of fast-track trade negotiating authority
(or Trade Promotion Authority, as it is now
labeled) a "historic moment" that would lead to
the creation of more jobs and more sales of US
products abroad.
Two weeks later, at his
economic forum in Texas, he argued, "It is
essential that we move aggressively [to negotiate
new trade pacts] because trade means jobs. More
trade means higher incomes for American workers."
The administration of Bush's predecessor Bill
Clinton confidently forecast that the huge US
trade deficit with China would improve if Congress
ratified the agreement to bring China into the
WTO. President Clinton called the agreement "a
win-win result for both countries". He pointed to
growing exports to China that "now support
hundreds of thousands of American jobs", and
claimed, "These figures can grow substantially
with the new access to the Chinese market the WTO
agreement creates."
Others in the Clinton
White House, such as Kenneth Liberthal, the
special adviser to the president and senior
director for Asia Affairs at the National Security
Council, had echoed Clinton's assessment: "Let's
be clear as to why a trade deficit might decrease
in the short term. China exports far more to the
US than it imports from the US ... [The trade
deficit] will not grow as much as it would have
grown without this agreement, and over time
clearly it will shrink with this agreement."
In practice, the results of China's 2001
entry into the WTO have confounded these
expectations. US exports to China increased by $8
billion between 2001 and 2003, an increase of 44%.
US imports increased by $50 billion, or 49%, on a
base of imports that was nearly six times the
value of exports in 2001. As a result, the trade
deficit increased by 50% in this two-year period
alone.
Growing trade deficits eliminated
production supporting about 70,000 jobs per year
between 1987 and 1997, and 105,000 jobs per year
between 1997 and 2001. Between 2001 and 2003, job
displacement soared to 234,000 per year, more than
twice the rate of the preceding four years. This
change is particularly noteworthy because total US
domestic employment fell from 2001 to 2003 and the
rate of growth of the US trade deficit with all
countries slowed. Between 1997 and 2001, the US
global trade deficit increased by 31% (7.8% per
year). Between 2001 and 2003, it grew 10% (5.1%
per year).
Trade and employment
displacement
The great bulk of US imports
from China and a sizable majority of US exports
are manufactured goods. In 1989, the manufacturing
share was 91.5% of imports and 74.2% of exports.
Between 1989 and 1997, the total manufacturing
deficit with China rose from $6.6 billion to $50
billion, a net change of $46.6 billion. This trend
accelerated between 1997 and 2003. The net export
deficit in manufactured goods rose from $50
billion to $129 billion in this period.
In manufacturing alone, the
growth of exports between 1989 and 1997 supported
48,742 new jobs in the US, while the growth of
imports displaced production supporting 496,989
jobs, or a net loss of 448,247 job opportunities.
Between 1997 and 2003 increased production for
exports supported 63,000 jobs, while imports
displaced 740,000 job opportunities, or a net loss
of 677,000 manufacturing jobs. Note that the net
loss of employment-supporting production
accelerated, with 228,000 more manufacturing jobs
displaced in the latter period, even though it was
two years shorter.
Employment displacement
sped up further after China's WTO entry in 2001.
China has moved aggressively up the product ladder
from labor-intensive non-durable products such as
clothes and shoes to more sophisticated machinery
and durable goods. Over the past decade, a rapidly
rising share of China's exports has consisted of
electronics, machinery and transport
equipment.
The rapid development of China's
industrial base and research capacity is closely
related to the recent decline in the United
States' trade position in ATP. Imports and exports
in this category grew steadily between 1994 and
2000, with the US running a surplus throughout
this period. Imports and exports dropped during
the recession in 2001. Then imports leveled off
and began to recover in 2002, but exports
continued to decline in 2002 and stagnated in
2003. The US deficit reached $27 billion in 2003,
and it continues to grow.
In 2004, the US
eliminated a modest ATP trade deficit with the
rest of the world, but the deficit in ATP trade
with China continued to soar. In 2003, 89% of
China's ATP exports to the US were information and
communication systems (such as computers and
phones). US imports of ATP products from China
rose from $20 billion in 2002 to a $42 billion
annualized rate for the first nine months of 2004.
The fact that the US has returned to an ATP trade
balance with the rest of the world, even as the
deficit with China continues to grow, belies the
view that China exports "low-end" products to the
US while the US exports "high-end" products to
China.
Other manufacturing
industries
In 1989, the United States'
largest deficits were in apparel ($2.9 billion),
leather and leather products ($977 million),
household audio-video equipment ($697 million),
communications equipment ($284 million), and
rubber and plastic products ($542 million). That
same year, the US had sizable trade surpluses with
China in chemicals ($1.029 billion) and
non-electrical machinery ($550 million), which
included a small surplus in computer equipment
($83 million).
In 1997, the United States'
net export deficit with China in manufactured
goods swelled to $51 billion. Of this total,
apparel still had the largest deficit ($7.9
billion), but other sectors were catching up,
including leather and leather products ($6.6
billion), household audio-video equipment ($3.5
billion) and communications equipment ($1.2
billion), and rubber and plastic products ($4.3
billion). Between 1989 and 1997, the US surplus
with China in chemicals was in essence flat ($1
billion) and what had been a surplus in
non-electrical machinery swung into a sizable
deficit ($3.8 billion).
The swing in
non-electrical machinery was driven by a surge in
computer exports to the US, resulting in a net
export deficit of $4.2 billion in this sector.
These data show that China is rapidly climbing the
product ladder from low-wage,
low-capital-intensive industries to sectors
requiring more capital, skills and technology,
which have supported rapid income growth in China.
These trends continued and accelerated between
1997 and 2003.
The net export deficit in
manufactured goods rose from $50 billion to $129
billion in this period. The largest deficits
($22.6 billion) were now in non-electrical
machinery, most of it computers ($17.6 billion).
Other sectors with large deficits included audio
and video equipment ($12.2 billion),
communications equipment ($5.93 billion), and
semiconductors. The trade deficit in
semiconductors nearly tripled between 1997 and
2003 alone (from $2.2 billion to $6.4 billion).
Net exports in leather goods soared to $12.9
billion in 2003, exceeding the apparel deficit
($10.6 billion). Furniture is another sector where
the trade deficit has soared in the past six
years, more than quadrupling from $1.6 billion in
1997 to $7.6 billion. China has widely diversified
and expanded the base of its industrial structure
and exports to the US over the past 14 years,
moving rapidly up the production-technology ladder
as it has done so.
US exports have been
less than $1 billion and largely stagnant in
communications equipment, audio/video equipment,
computer equipment and auto parts. There is more
evidence of two-way trade in semiconductors, where
exports rose from $500 million in 1989 to $2.5
billion in 2003 and the trade deficit has leveled
off since 2000 as a result. The modest growth in
US exports of non-electrical machinery to China
was not sufficient to thwart a doubling of the
trade deficit in 2003, when China's exports soared
and imports from the US failed to keep pace. The
rapid growth of imports and trade deficits in five
of the six sectors covered in these figures is
remarkably similar.
Employment effects
of trade with China
The distribution of job
losses between 1989 and 1997 closely follows
changes in trade patterns, with a few major
exceptions. The largest losses of job-supporting
production in this period occurred in leather
products (66,000 jobs) apparel (55,000), rubber
and plastics (38,000), furniture (15,000), and
electronic machinery (69,000) - which included
audio/video equipment (18,500) and communications
equipment (3,700 jobs). The textile industry also
experienced a major indirect effect as it suffered
a loss of output that would have supported 24,000
jobs due to the growth of apparel imports. During
this period, the apparel deficit was more than 10
times as large as the deficit in textiles, yet
both industries suffered a similar amount of
employment displacement.
Between 2001 and
2003, loss of job opportunities in apparel
(24,000), textiles (23,000), leather products
(14,000) and rubber and plastics (15,000) fell off
sharply compared with the 1989-97 period. Job
displacement increased sharply in furniture
(39,000) and non-electrical machinery (50,000),
including nearly a tripling in computers (30,000).
The largest amount of employment displacement in
this period occurred in electronic machinery
(91,000 jobs), which included audio/video
equipment (28,000), communications equipment
(11,000, a near tripling), and semiconductors
(25,000).
Although the loss of
job-supporting production in textiles and apparel
sped up after China entered the WTO in 2001, the
total remained well below levels that prevailed in
the 1989-97 base period. Since 2001, the
displacement of production that could support jobs
has grown most rapidly in middle- and
high-technology sectors such as furniture,
computers, audio/video, communications equipment
and semiconductors. China's move up the technology
ladder in the opening years of the 21st century
has been truly breathtaking. The net job
displacement goes from 312,000 between 1989 and
1997 to 677,000 from 1997 to 2003, even though the
second time period is far shorter than the first.
Trade-related employment changes occurred
in both high- and low-wage business service
sectors. In the former, production supporting
13,000 jobs was displaced in the personnel supply
(temporary help) industry, which offers many
workers wages lower than those of their industrial
counterparts, and few benefits. On the other
higher-wage side of the scale, employment
displacement included 3,200 depository institution
jobs, 1,400 investment-banking jobs, 1,500
computer and data-processing jobs (though many of
these could have been data-entry personnel),
12,000 miscellaneous business service jobs, 2,800
legal service jobs, 2,900 management and public
relations jobs, 3,200 accounting jobs, and 5,200
job-training positions, along with a similar
number of positions in many other service
industries.
Business service sectors
continued to experience job losses on a similar
scale in the later periods. Newly identified
sectors include architecture and engineering
services (2,800 jobs between 1997 and 2001, and
3,400 jobs between 2001 and 2003); management,
scientific, and technical consulting (2,100 and
2,500 respectively); and scientific research and
development and related services (5,200 and 6,400
jobs).
The displacement of domestic
production in these advanced scientific,
technological and research industries illustrates
how the demise of manufacturing brought on by
growing trade deficits with China is eroding the
foundations of US technological leadership in many
industries. Two critical transportation-equipment
industries - motor vehicles and aerospace - offer
a good case in point. Businesses in both these
sectors strongly supported China's entry into the
WTO, claiming that the growth of the Chinese
markets would increase demand for US products.
However, those investments have not increased US
employment in tandem with growing trade with
China.
Between 1989 and 1997, the growth
in the US trade deficit with China had in essence
no effect on the auto industry. Meanwhile the
aerospace sector enjoyed substantial gains (8,100
jobs) due to its growing trade surpluses with
China. However, by 2003 changing trade flows
resulted in a net decline in employment-supporting
production in both sectors. Overall, the auto
industry lost production supporting 6,000 jobs
between 1997 and 2001, and 5,000 jobs between 2001
and 2003, largely because of a surge in auto-parts
imports from China.
In aerospace, the
growth in the job-creating trade surplus came to
an end, and employment changes in essence ended by
2003. While the industry still maintains a
substantial overall surplus in trade with China,
the surplus has in effect stopped growing. It
could become negative in the years ahead if parts
imports begin to grow, as was the case for autos
in 2003. If the US cannot compete with China in
aerospace, it is not clear which sectors could
provide the foundation for closing the trade gap
in the future.
States share the
losses
The growth of trade deficits with
China has displaced production supporting jobs in
all 50 states and the District of Columbia.
Exports from every state have been offset by
faster-rising imports. Net employment-displacement
estimates between 1989 and 1997 range from a low
of 334 in Alaska to a high of 81,800 in
California. Other hard-hit states include Texas,
New York, Pennsylvania, Illinois, North Carolina,
Florida and Ohio, each with more than 20,000 jobs
lost. These states all have high concentrations of
industries where a large number of plants have
moved to China (textiles and apparel, furniture,
computers and electrical equipment,
semiconductors, and motor-vehicle parts).
Manufacturing industries suffered 77.8% of
trade-related jobs displacement between 2001 and
2003 - 364,800 goods-manufacturing jobs in those
two years alone. Net displacement of
production-supporting employment was also negative
for every state and the District of Columbia
between 1997 and 2003. The magnitude of job losses
in the states remained generally similar in each
sub-period, though a few states moved up or down a
notch or two between the two periods of 1997-2001
and 2001-03. For example, between 2001 and 2003,
North Carolina and Georgia moved slightly up the
list.
States that fell in the rankings
from the earlier to the latter period include
Ohio, Indiana and Wisconsin. However, each of
these states experienced large and significant job
losses in both periods. For example, Wisconsin,
the lowest-ranking state in this group, lost
12,300 job opportunities in the four years from
1997 to 2001 and 11,300 in the two years from 2001
to 2003. While job displacement in most states was
modest compared with total employment, it is
important to remember that the promise of new US
jobs was the principal justification for China's
entry into the WTO.
Dr Robert E
Scott is the director of international
programs at the Economic Policy Institute,
which made this article available.
|
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
Asian Sex Gazette China Sex News
|
|
|
