Over the last couple of years, Americans have learned that few things in life are truly "recession proof" - except apparently our trade deficit with China. At a time when Americans are spending less, and thus importing fewer goods from China, our trade deficit with China this year will still be a staggering $225 billion or so. This single year's trade deficit will reduce U.S. GDP by more than $400 billion, further threatening our already dismal manufacturing sector and frustrating our overall economic recovery. According to economist Peter Morici, the U.S. economy would likely be $1 trillion larger today but for the trade deficits with China over the last ten years, which is a trillion dollars our economy could very much use right now.
And if this $1 trillion figure isn't sobering enough, American workers have in the past decade seen millions of their jobs offshored and ongoing downward pressure on labor conditions here at home. In just twenty years, China has increased its share of global manufacturing from 2% to an estimated 18% in 2009, which now roughly matches our own U.S. percentage. (The economist Clyde Prestowitz has just published what I think is a brilliant summary of U.S. trade relations and their history in his new book, "The Betrayal of American Prosperity" (Free Press, 2010), which I strongly recommend to everyone concerned about these issues.)
The major cause of our trade deficit with China is of course the extreme cost differential between Chinese and American manufactured goods, fully 90% of which is due to China's massive, often illegal, subsidies and its roughly 40% currency manipulation - the other 10% is due to China's abysmally low all-in labor costs. For years, I and other pro-worker advocates have mostly railed against these various subsidies, as well as China's weak environmental standards, because of their relative magnitude and their obvious painful effects on American workers.
Over the past couple of weeks as more and more news reports have come out of China, I've concluded that in focusing so much on China's myriad illegal trade practices, too many of us, myself included, have insufficiently reminded the world of the pure shame of China's labor practices concerning wages, work hours and conditions - practices that have no place anywhere in the developed world, least of all in the soon-to-be second-largest global economy.
We've known of China's dismal labor situation for years, but whenever an American administration has traveled to China to 'beg' for trade reforms - and that's what we've been doing, administration after administration, is 'begging' - we never seriously and urgently call China out on its labor practices. So, at the same time that we continue to get bupkus in the way of reformed trade practices, we also aren't doing anything particularly helpful for the millions of mistreated Chinese workers who try to subsist on an average monthly minimum wage of just $133 and survive in deplorable work conditions.
The international uproar in recent weeks over China's labor practices found much of its genesis in a tragic cluster of suicides by beaten-down workers at Foxconn Technology, China's massive 270,000-employee mega-factory-town that manufactures for the likes of Apple, Dell and Hewlett Packard and where workers have recently been pressured to work as many as 13 consecutive days. But the consternation that this tragedy has engendered throughout many of China's manufacturing centers perhaps also represents the birth of China's own true 'labor movement', a movement which cries out for serious but sensitive responses from every quarter of the developed world, especially including from us here in America.
And this consternation is certainly not the natural result of China's high labor demand meeting shrinking labor supply, or of the growth of the middle class and their expectations, or of China's need to 'create its own nation of shoppers based on higher wages because it now can't rely as much on exports to the Western economies', which is what pundits with rose colored glasses are saying these recent employee actions simply are. How else can you explain the suicide clusters and workers' willingness to publicly confront the central government which they still generally view as ubiquitous?
Given that almost no meaningful attention has been paid to labor conditions in China by any recent White House including the current one, the burden for making the U.S. response this time again heavily falls on the American labor movement and pro-worker advocacy groups, as it has historically. In a memorable speech in 2001, then AFL-CIO President John Sweeney called on the unions of the world to "commit to pressuring our governments to champion the cause of building enforceable workers rights into the rules of the global market." In 2008, in an even more targeted speech, UAW President Ron Gettelfinger specifically accused China of "the suppression of worker and trade union rights" and protested that "the Chinese government [does] not permit the formation of democratic independent unions."
American labor's responses to these calls from its leaders were, in the past, understandably mostly 'rearguard' actions centered on closing tax loopholes, disincenting offshoring, and enforcing labor standards in WTO and bi-lateral trade agreements, with not much effect. For the first time since Tiananmen Square, however, we are seeing not only real signs of labor unrest in China (both at enormous Foxconn and at much smaller Honda), but also the prospect of meaningful concessions by the central and local governments, hopefully to include raising minimum wages to living wages, and by major foreign and domestic companies.
The wages and working conditions that Chinese workers now confront daily are inescapable spurs to immediate action by them. However, with each confrontation and especially with each strike at a large company, the all too cozy relationship that exists between foreign corporations and Chinese elites is being challenged and the likelihood of a government crackdown grows.
Unfortunately, Chinese workers have little expertise in organizing themselves or in negotiating contracts. But what they lack in experience, they make up for in intensity - and in curiosity.
China's new labor movement should take a page from two of America's powerful industrial unions and one of its iconic corporations. The United Steel Workers (USW) and the International Association of Machinists (IAM) forged a deep-seeded relationship with Harley Davidson decades ago, the fundamentals of which have management and labor engaged as true partners in most significant decision-making. And while their three-handed "High Performance Work Organization" isn't perfect, it has clearly led to better financial results for the company, better wages and benefits for the workers, and better motorcycles.
The tremendous insights, technical skills and experiences from the unions that pulled Harley back from the brink of bankruptcy to become an extremely profitable company (before this Recession put such strains on its customer base) are not unique to Harley and they are available on the Internet for all to see. No labor delegations need be sent from the U.S. to China; no formal exchanges are required. All that workers in China need is a computer to see constructive labor relations in action and how good they can be for all concerned.
Despite the recent attention in and outside China to 'blue-chip' companies like Foxconn, there are literally millions of smaller and subcontractor factories in China in the ilk of America's Harley Davidson. It is for these smaller companies' workers especially that American labor unions can provide examples of responsible pathways to better labor relations. We just saw, for example, that when the workforce is no more than about 2,000 employees, which is the case at Honda's three strike-affected factories, it is relatively easy for employees in China to organize and negotiate on a plant-by-plant basis, despite the fact that the All-China Federation of Trade Unions or ACFTU is, by Chinese law, the umbrella organization for all things labor-related and "unauthorized" labor organizing is prohibited.
Clearly, if China's nascent indigenous labor movement is to survive, it will, fairly quickly, have to find a model away from the ACFTU without directly undermining it, and what better model than the American labor movement which, for more than a century, has been inherently non-radical, unlike many other labor movements around the world, and generally focused on improving economic conditions and reforming workplace conditions, rather than on challenging the legitimacy of governments.
This is an incredibly fragile moment in Chinese labor history with implications not just for Chinese workers but for America as well. China could be on the cusp of a new movement that markedly improves the lives of its workers, or the world could see this movement wither through a lack of organizing expertise or because of government crackdown. While we need to be realistic about our own ability to impact any outcomes in China - and very sensitive to the fact that even our indirect involvement could result in the opposite of our intended outcome - I am eager to see the American labor movement smartly and creatively provide all the help to China's workers that it can responsibly offer. And I look forward to their positive results.
Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.