China Giant Poised To Stomp Key U.S. Industries

by Emad S. Mekay

(IPS) WASHINGTON -- Thirteen years ago, the maverick presidential candidate Ross Perot lamented what he colorfully termed "a giant sucking sound" of U.S. jobs heading to Mexico. Now it seems Perot was looking in the wrong direction.

According to a new report, the ballooning trade deficit with China is the biggest worry for U.S. workers, costing at least 1.5 million jobs since 1989. It also threatens to leave more workers from traditionally protected sectors unemployed in the future, says the study released Jan. 11 by the Economic Policy Institute, a pro-labor research group in Washington.

The Institute said that the United States' trade deficit with China swelled twenty-fold over the last 14 years, from $6.2 billion in 1989 to $124 billion in 2003. It is expected to have risen by more than 20 percent last year, to over $150 billion.

The report was prepared for the U.S.-China Economic and Security Review Commission, a panel set up by Congress that has pushed for a tougher approach toward China on trade.

Established in October 2000, the panel has 12 members whose duties include submitting an annual report on the national security implications of the U.S. economic relationship with China.

The report finds that U.S. exports increased from $5.8 billion in 1989 to $26.1 billion in 2003, a fourfold increase. However, imports rose from $11.9 billion to $151.7 billion in the same period, a twelve-fold increase on top of a base that was already twice as large as exports.

As a result, the U.S.-China trade deficit increased $119.5 billion -- or nearly 2,000 percent, says the report.

The report recommends a re-examination of the U.S. strategy toward the Asian country, especially because China is also rapidly winning ground in advanced industries like car manufacturing and aerospace products, which have provided the foundations of the United States' industrial base for generations. Semiconductors technology, once thought immune to lower-wage Chinese competition, is now open for Chinese imports.

"The assumptions we built our trade relationship with China on have proved to be a house of cards," said Robert E. Scott, director of international programs at EPI.

"Everyone knew we would lose jobs in labor-intensive industries like textiles and apparel, but we thought we could hold our own in the capital-intensive, high-tech arena. The numbers we're seeing now put the lie to that hope -- as China expands its share even in core industries such as autos and aerospace."

According to the study, China's exports to the United States 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.

In fact, China now accounts for the entire $32 billion U.S. trade deficit in so-called Advanced Technology Products.

That shift, in turn, reduces the demand for high-tech workers and skilled business professionals in the United States. "It is hard to overstate the challenges posed by this export behemoth," says the report.

The 1.5 million job opportunities lost across the United States are distributed among all 50 states and the District of Columbia, with the biggest losers including California (-211,045), Texas (-106,262), New York (-87,037), Illinois (74,070), Pennsylvania (-73,612), Florida (-65,733), North Carolina (-65,279), Ohio (-61,914), Michigan (-54,313), and Georgia (-49,589).

The report points a finger at what it says is an undervalued Chinese currency, making it difficult for U.S. firms to export to China while it subsidises China's exports to the United States.

"China's refusal to revalue its exchange rate, despite enormous demand for its currency, is also a major contributor to the growth of the U.S. trade deficit," says the report.

The report also challenges assumptions about China's entry into the Geneva-based World Trade Organization (WTO). The membership was supposed to provide the opening for a rapid growth in U.S. exports to trim down the trade deficit with China. While the export growth rate has gone up since 2001 from a small base, the value of those exports has been inundated by a rapidly rising tide of imports.

The WTO is based on a free trade and investment agreement that has provided international investors with a unique set of guarantees designed to stimulate foreign direct investment and the movement of factories around the world, especially from the United States and Europe to low-wage locations such as China and Mexico.

The WTO agreements are often criticized as lacking any real labor or environmental standards, making it cheaper for multinational corporations to relocate factories and businesses to areas with the lowest costs.

Multinational companies from around the world have used the protections for investment and intellectual property provided by the WTO to quickly expand investment, production, and exports from China, says the report. The United States remains China's primary market for exports.

"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," concludes the report.