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Ann Lee

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A World Without China

Posted: 01/09/12 01:20 PM ET

While its more fashionable for certain politicians and many Western media commentators to blame China for America's economic ills, the reality is that the U.S. and the rest of the world would likely be in a deeper recession, if not a depression, were China missing from the global picture.

China accounts for the lion's of the world's domestic consumption growth. Increasing at a rate of about 8 percent per year -- more than twice that of the G7 -- China's growth has actually eased the severity of the economic contraction felt by Americans and people around the world. In short, the jobs crisis would be even worse.

And yet the notion that China took all the manufacturing jobs from the U.S. persists even though U.S. manufacturing jobs started declining long before China became engaged in the global economy. In 1965, U.S. manufacturing was 53 percent of the economy and by the 1970's, manufacturing declined to only 25 percent. And with President Clinton's signing of the NAFTA agreement, U.S. manufacturing jobs further migrated to Mexico, not China.

There are more than 3 million U.S. jobs open today which include those in manufacturing. And painful as it might be to admit, they have remained unfilled for six months or longer because the American labor force lacks the technical skills needed.

Americans, in fact, are the biggest beneficiaries of Chinese labor and consumerism. American corporations have enjoyed record profits since the financial crisis of 2008 because they discovered that China was where they could not only keep expenses low, but also generate rapidly growing revenue.

If China didn't exist, many existing American companies would have closed up shop or never even opened in the first place because they wouldn't have had enough consumer demand to cover the higher expenses associated with higher U.S. labor wages and regulations.

Because of China, the U.S. can employ more accountants, lawyers, marketing professionals, financial advisors, retailers, logistics managers, and a long list of other service jobs that benefited from American entrepreneurs who were able to start their businesses by outsourcing to China.

As reported by the San Francisco Federal Reserve, for every dollar spent by a product made in China, 55 cents goes to pay for American jobs, contributing more to American jobs than products made anywhere else, including those made in the U.S. The U.S. added higher paying service jobs as a result of China. Without China, U.S. unemployment would be much higher than today.

Debt in the U.S. also would have continued to grow unabated if China were not in the picture. Total U.S. household debt grew every single year since 1982 after accounting for inflation. China, on the other hand, did not start buying U.S. Treasuries in significant numbers until the mid 2000s after the Internet crash so China could not have been a significant factor to the U.S. debt problem. Growth in income inequality in the U.S. already started in the 1960's, again, long before China came into the picture.

The truth is that it is simply more convenient to blame China for America's problems than to take ownership and fix them ourselves. Criticizing others is always easier than acknowledging and changing our own bad habits. However, adopting such attitudes and behavior will only make matters worse.

Rather than live in procrastination and denial, we need to recognize that the solutions to America's problems are all within the nation's control as long as there is political will to tackle them. Whether it is nurturing more innovation, retraining unemployed workers, or reining in our addiction to debt, the only thing standing in the way of the U.S. from solving its problems is U.S. leadership.

The existence of China, thankfully, has allowed Americans to buy more time to solve its internal political problems without stagflation rearing its ugly head. That is China's gift to us; let's not squander it.

Author of What the U.S. Can Learn from China, Senior Fellow at Demos, and Professor at New York University

 

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