The Case For China Trade

The fact checkers have been chirping all day about Trump's acceptance speech. But we've heard nothing about the Great Job Creator's talking points about China, its currency manipulation, and how bad trade deals have killed jobs across America.

Let's consider some facts.

1. China's currency manipulation has zero impact on US jobs.

Going back to 1991, there is zero correlation between U.S. unemployment levels and China's currency value. Except for the Great Recession of 2008 and a recessionary blip in 2003, unemployment has been mostly trending down, regardless of whether the yuan is rising or falling in value. If there were any truth to the argument that China's currency policy kills American jobs, it would be reflected in the data. The sharp decline in value of the yuan in 1993-1994, for example, would trigger U.S. job losses. But if you look at U.S. unemployment levels in 1993-1994, they continue on their downward trend - in other words, America keeps adding jobs despite China's falling currency value.

2. Made in China is an illusion.

We're still using pre-globalization numbers to measure a globalized world, where your morning cup of coffee is made from ingredients that have criss-crossed the world. Yet, we still consider a product is "made" in the last country that shipped it to us. That's a problem with Chinese imports because most of the stuff we import from China actually contains US-made inputs. You wouldn't know it because of the deceptive Made in China label, but Chinese hardware, like faucets and doorknobs, often contain U.S. recycled steel. Chinese clothes often contain U.S. cotton. Chinese furniture often contains U.S. lumber. Chinese boxes often contain U.S. pulp. Chinese solar panels often contain U.S. PV polysilicon. Chinese consumer electronics often contain U.S. technology.

Consider that the value of an iPhone contains less than 6% Chinese value-add. Still, our antique trade statistics count the iPhone along with everything else we import from China as 100% Chinese made, totally distorting China's trade footprint. Most of the products we import from China are not really "made" there -- they're assembled there, from components sourced around the world, including the United States.

3. Chinese imports support millions of jobs across America

If imports kill jobs, we'd see it in the data. Since 1981, imports have been rising steadily, while unemployment has been trending down, except for the period since the Great Recession of 2008, which slowed trade and caused significant job losses. Looking at the last thirty years, there is no correlation between imports and job losses.

Actually, imports support lots of jobs across America -- especially imports from China, as they usually require US-made inputs. American jobs supported by Chinese imports exist at the beginning and end of the U.S. supply chain.

Solar panels are a great example. Overall, we sell more solar energy products to China than we buy. Our top solar export to China is the expensive, high-tech capital equipment used to make the solar panels. Our second top export is the PV polysilicon, the raw material that goes into the crystalline silicon photovoltaics, the active element in solar panels that converts sunlight into energy. China imports these items to fabricate and assemble the panels, relatively lower value functions in the chain. China then exports the panels back to us. Once the panels arrive, there are several important services that support tens of thousands of jobs. The panels must be transported, the site must be prepared, permits must be filed for, and the system must be installed and maintained.

However, when tariffs were raised by the U.S. Commerce Department by 240% on just one part of the solar chain - the solar panels - then demand for imported Chinese panels decreased, which in turn decreased demand for U.S. exports of capital equipment and PV polysilicon, plus the demand for all the services associated with selling, permitting, installing, and maintaining the systems. And so, the policies meant to safeguard U.S. jobs by punishing China actually achieved the opposite effect. Jobs were killed, not saved. Case in point -- the largest U.S. PV polysilicon manufacturer recently closed its doors directly because of slackening Chinese demand.

4. Trump's policies would decimate U.S. jobs

That's why Trump's threat to raise tariffs on all Chinese imports is so dangerous. A trade war sounds distant and abstract to us, and increased prices at Wal-Mart, perhaps not that big a deal. But how about killing millions of American jobs in every economic sector and each state across the U.S.?

Trump would kill not just the U.S. jobs supported by Chinese imports, but the export jobs, too. In almost every congressional district, exports to China have been skyrocketing for the last decade. Over the past 10 years, in 401 out of 435 congressional districts (that's 92%), American exports to China doubled - often tripled or, in some cases, grew tenfold and more. And that's in the Rust Belt states, too! So not only is America selling a lot of stuff to China, nearly every part of the country is.

Exports support jobs. Lots of them. By 2010, U.S. exports directly supported 10.7 million jobs, according to the U.S. Commerce Department. Our exports recovered from the recession faster than Germany's, the leading export nation of Europe, and exports made up more than 46% of the growth in America's economy from 2010 and 2011 alone - led by U.S. manufacturing. Given that China is our third largest export market, as well as our fastest growing market for many products and services, U.S. export growth in large part can be attributed to Chinese demand.

5. Don't blame NAFTA

Manufacturing employment started declining after 1979, 14 years before the implementation of NAFTA and 22 years before China joined the World Trade Organization. Just because factories close, doesn't mean the jobs have been outsourced. To be sure, some jobs are shipped abroad, but that number is much lower than advertised. If we look at the Bureau of Labor Statistics' out-of-country relocations, which is a reasonable place to start, since it gives us a good baseline of full-time laborers whose jobs have been sent overseas, outsourcing is a considerably smaller trend than typically portrayed in the news media.

Take 2009, an especially bad year for American employment, amidst a severe economic retraction. The U.S. lost 30.8 million jobs, while creating 25.3 million jobs. BLS out-of-country relocations for 2009 numbered 10,378, representing .03% of job losses.

That fact is that in America, millions of jobs are usually created and lost every year. It is convenient to blame the job losses on another country like China. Demagoguing currency, outsourcing, and the trade imbalance lets politicians tap into our anger and insecurity while misdirecting our attention from the true causes of our economic ups and downs.

6. Shout it from the rooftops: China is not the world's largest economy

Underlying the theme of Make America Great Again is a belief that China has us beat. But the basis for the economic claim that China has already surpassed the United States is gross domestic product, a misleading metric that's a relic from World War I. 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, $40 to 60 trillion dollars wealthier than China, whose national wealth is roughly $21 trillion. And that gap is growing, not shrinking, with $20 trillion being added to the delta just in the past few years.

From an economic standpoint, the thought of making America "great again" is absurd. We're still, far and away, the world's most powerful and dynamic economy. Yes, America has its dire economic problems. Wage stagnation, growing income inequality, and persistent unemployment, among them. We've got a lot of work to do here at home. But to blame our economic challenges on trade with China is a lazy, dishonest claim that takes our eye off the ball and does a disservice to the enduring competitiveness of America's labor force.

If saving and creating American jobs is our goal, then Trump's proposals would achieve the very opposite.

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