8.01.2008

Is China Causing Job Losses in the U.S.?

Why have millions of U.S. manufacturing jobs been lost in recent years? Is the cause outsourcing by U.S. companies? Competition from foreign sources, accompanied by currency manipulation? Or productivity improvements?

Politicians like to point to foreign competition and outsourcing. Lean advocates focus more on productivity gains, noting that actual manufacturing output has not declined in the same way as the number of jobs. Further, we note that much of the growth of manufacturing overseas is to produce goods for those local markets, not to replace goods manufactured in the U.S.

But that doesn’t mean foreign manufacturing has NO impact. And a new report from the
Economic Policy Institute argues that China is a big source of problems for the U.S.

The report, which studies jobs in the U.S. in relation to exports and imports from 2001 to 2007, states:

The growing U.S. trade deficit with China has displaced huge numbers of jobs in the United States and has been a prime contributor to the crisis in manufacturing employment over the past six years. Moreover, the United States is piling up foreign debt, losing export capacity, and facing a more fragile macroeconomic environment…

Between 2001 and 2007 2.3 million jobs were lost or displaced, including 366,000 in 2007 alone…

Because U.S. exports to China are much more commodity intensive (i.e., comprising products such as grains, steel scrap, and paper scrap) than Chinese imports (99% of which are manufactured products), average wages earned in jobs producing U.S. exports to China paid 4.4% less than the jobs displaced by imports from China. More than one-fourth of U.S. exports to China on a value basis were commodities…

Rapidly growing imports of computers and electronic parts accounted for almost half of the $178 billion increase in the U.S. trade deficit with China between 2001 and 2007. The $68 billion deficit in advanced technology products with China in 2007 was responsible for more than 25% of the total U.S.-China trade deficit. The growth of this deficit eliminated 561,000 U.S. jobs in computer and electronic products in this period. Other hard-hit industrial sectors include apparel and accessories (153,000 jobs), miscellaneous manufactured goods (134,000), and fabricated metal products (102,000); several service sectors were also hard hit by indirect job losses, including administrative support services (139,000) and professional, scientific, and technical services (128,000).

The report also focuses on the issue of currency manipulation:

A major cause of the rapidly growing U.S. trade deficit with China is currency manipulation. China has tightly pegged its currency to the dollar at a rate that encourages a large bilateral surplus with the United States. Maintaining this peg required the purchase of about $460 billion in U.S. treasury bills and other securities in 2007 alone.2 This intervention makes the yuan artificially cheap and provides an effective subsidy on Chinese exports…

While the overall U.S. trade deficit improved significantly in 2007, largely as a result of the 30% decline of the dollar against major currencies since 2002 (including a 44% fall against the euro), the U.S. deficit with China increased $26.6 billion, in large part because China allowed the dollar to fall only 12% against the yuan between 2002 and 2007.

I’m sure currency manipulation is a real issue. But there are still some U.S. manufacturers who compete successfully on a global scale because they embrace a lean strategy.

Do you believe China is a cause of U.S. job losses? Is a lean approach enough to deal with the forces shaping global markets? What is your experience?

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