Why Trump Is Wrong About China, China, China

DALLAS, TX - SEPTEMBER 14:  Republican presidential candidate Donald Trump speaks during a campaign rally at the American Air
DALLAS, TX - SEPTEMBER 14: Republican presidential candidate Donald Trump speaks during a campaign rally at the American Airlines Center on September 14, 2015 in Dallas, Texas. More than 20,000 tickets have been distributed for the event. (Photo by Tom Pennington/Getty Images)

After the devaluation of the yuan and the dive in China's stock exchanges, the blowback on American markets and the presidential candidates lining up to blame China, President Xi Jinping may be wishing he'd booked his visit for another time. But now is the perfect opportunity to set the record straight. The latest round of China bashing -- that China is "killing us," stealing our jobs and money -- overestimates China's clout and distorts our discourse.   It's easy to see why we fear China's economic might. Take a walk down the aisle of your local Walmart and just about everything appears to be "Made in China." If China can make anything we can, only cheaper and at the click of a mouse, we must be racing to the bottom in wages, jobs and quality of life. It's no wonder campaign themes like Donald Trump's "Make America Great Again" are resonating this election season. We feel like we're on the ropes and China has us beat. Polls like the 2012 Pew Global Attitudes Project Survey confirm this notion, showing more Americans believe China is the world's leading economic power today. 

But China is not the world's largest economy, nor is it the world's second-largest economy, as we hear so often. It only appears outsized because we're looking at China through a distorted lens.     The basis for claims that China has already surpassed the United States is gross domestic product, a misleading metric. It tallies up how much a nation spends over a period of time, but tells you little about an economy's true size. If you wanted to compare your household wealth to the Jones', would you add up how much you spent in a given year?  No, you would compare your assets and liabilities. By that measure, America is, in fact, 50 to 60 trillion dollars wealthier than China, whose national wealth is roughly $21 trillion.

To make matters worse, China's GDP figures are untrustworthy. In an authoritarian government that considers economic growth its top priority, China's official statisticians are famous for fudging the numbers. So much so, that even China's leaders disregard their own statistics.

The size of China's economy, though, is less relevant than the quality of its growth. China's slowdown proves Warren Buffet's saying that when the tide rolls out, you can see who's been swimming naked. Americans imagine China as a manufacturing powerhouse, the world's factory floor. But viewed from the ground, the opposite is true. China struggles to make a toy safely, much less a nuclear power plant. 

Consider the "Made in China" safety scandals. There have been thousands just in the past few years and tens of thousands spanning decades. August's giant explosion in Tianjin was one of more than 300 major industrial accidents from the past seven months. Poisoned baby formula, lethal antibiotics, cadmium-heavy rice, lead-coated toys, collapsing bridges, toppling buildings -- in every corner of China's economy, severe safety lapses are a daily fixture of Chinese life.   

It's not a matter of a few bad actors, as the authorities would have us believe. China's manufacturing and agricultural sectors are hamstrung by systemic risk -- a combination of unsafe raw material inputs; weak corporate governance; long, opaque supply chains; and ineffective government regulation. Each step of the production process adds risk that the finished products will be unsafe.

China's systemic risk presents a real threat to our health, as U.S. inspectors screen only a tiny fraction of imports. We've already experienced firsthand the danger that pervades "Made in China" with tainted blood thinner, faulty auto ignitions, toxic drywall, deadly pet food and more.

The size of China's economy is less relevant than the quality of its growth.

Yet these problems also present opportunities. As China struggles to make things safely, its consumers and companies overwhelmingly prefer American-made goods.  Since China's melamine-laced baby formula poisoned some 300,000 infants, for example, U.S. dairy exports to China have more than quadrupled from $137 million in 2009 to almost $700 million in 2014. Chinese demand for safe, reliable products supports millions of American jobs through both imports and exports.

Let's look at exports first. U.S. sales to China have tripled in one decade, rocketing China up to our third-largest export market behind Mexico and Canada. This export growth is shared across the breadth of our economy -- from agriculture to manufacturing to services -- and across every state in the union. Some states, like South Carolina, have seen their exports to China grow ten-fold over the past decade.

And imports, which are frequently blamed for U.S. unemployment, actually support jobs across the country, too. You wouldn't know it from the "Made in China" label, but many Chinese imports contain American-made inputs: the cotton in a t-shirt, the pulp in an Amazon cardboard shipping box or even the software and components in an iPhone. The Federal Reserve estimates that over 50 cents of every dollar spent on Chinese imports goes directly to U.S. firms. So Donald Trump's proposal to raise duties on Chinese imports would dampen China's demand for American-made inputs, killing jobs, not saving them.   Far from being on the ropes, "Declining America" is still besting "Rising China."  We need to act on the outcomes of the Xi-Obama summit not from a posture of weakness yearning to be "Great Again," but from a position of abiding competitive strength. 

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