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U. S. Lost 1.9 Million Manufacturing Jobs Due to Trade Deficit With China

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According to a study released on September 20, 2011 by the Economic Policy Institute, the U.S.-China trade deficit has eliminated or displaced nearly 2.8 million jobs, of which 1.9 million or 70 percent were in manufacturing.

The study, "Growing U.S. trade deficit with China cost 2.8 million jobs between 2001 and 2010" by Robert Scott, EPI's director of trade and manufacturing policy research, writes, "Since China entered the World Trade Organization in 2001, the extraordinary growth of U. S. trade has had a dramatic effect on U.S. workers and the domestic economy."

The trade deficit with China grew from $84 billion in 2001, when China entered the WTO, to $278 billion in 2010. It eliminated or displaced 2,790,100 jobs, or about 2 percent of total U.S. employment over that period. All 50 states, the District of Columbia and Puerto Rico suffered jobs lost or displaced as a result of the growing U.S.-China trade deficit. The 10 states that suffered the biggest net losses were California (454,600 jobs), Texas (232,800), New York (161,400), Illinois (118,200), Florida (114,400), North Carolina (107,800), Pennsylvania (106,900), Ohio (103,500), Massachusetts (88,600) and Georgia (87,700). These losses comprise more than 2.2 percent of total employment.

A total of 453,100 jobs were lost or displaced from 2008 to 2010 alone -- even though imports from China and the rest of world collapsed in 2009 during the height of the global financial crisis. In fact, the report notes the U.S. trade deficit with China increased $8 billion during the great recession, despite a collapse in world trade at that time.

The largest share of manufacturing jobs lost or displaced were in computer and electronic parts, accounting for more than 44 percent of the $194 billion increase in the U. S. trade deficit with China between 2001 and 2010. In 2010, the total U.S. trade deficit with China was $278.3 billion, of which $124.3 billion was in computer and electronics parts. This growth of the trade deficit resulted in the loss of 909,400 jobs in these industries.

Apparel and accessories lost 178, 700 jobs, textile fabrics and products lost 92,300 jobs, fabricated metal products lost 123,900 jobs, plastic and rubber products lost 62,000 jobs, motor vehicles and parts lost 49,300 jobs, and miscellaneous manufactured goods lost 119,700 jobs. The job displacement estimates in the report are conservative and represent only the direct and indirect jobs displaced by trade and exclude jobs in domestic wholesale and retail trade and advertising.

"Global trade in advanced technology products -- often discussed as a source of comparative advantage for the United States -- is instead dominated by China," the report concludes. The U.S. had a new record $94.2 billion trade deficit in Advanced Technology Products (ATP) with China in 2010 compared to a $40.7 billion trade deficit in 2007, an increase of 45.5 percent in three years. In contrast, the United States had a $13.3 billion surplus in ATP with the rest of the world in 2010.

The impact of the trade deficit with China extends beyond U.S. jobs lost or displaced, according to the Alliance for American Manufacturing (AAM). Competition with China and countries like it has resulted in lower wages and less bargaining power for U.S. workers in manufacturing and for all workers with less than a four-year college degree.

Cheap labor may well be the main reason for China's manufacturing advantage, but the report cites illegal currency manipulation as a major cause of the rapidly growing U.S. trade deficit with China. Unlike other currencies, the Chinese yuan does not fluctuate freely against the dollar, but is artificially pegged in order to boost China's exports. While the cost of labor affected China's exports, the currency manipulation, which happened despite China joining the World Trade Organization in 2001, distorted its imports.

American policymakers have long assumed that as China's huge middle class grew, U.S. companies' sales to these new consumers would also grow. But it did not work out that way, the EPI reports: "as a result of China's currency manipulation and other trade distorting practices, including extensive subsidies, legal and illegal barriers to imports, dumping and suppression of wages and labor rights, the envisioned flow of U.S. exports to China did not occur." Added to its labor cost advantage, this currency manipulation has been devastating to many U.S. companies.

China's currency manipulation, state-owned enterprises, heavy industrial subsidies, intellectual property theft and piracy, indigenous innovation policies, rare earth mineral export restrictions and other trade-distorting practices have caused China's share of the total U.S. non-oil goods trade deficit to soar from 69.6 percent in 2008 to 78.3 percent in 2010.

"Unless China raises the real value of the yuan by at least 28.5 percent and eliminates other trade distortions," the report concludes, "the U.S. trade deficit and job losses will continue to grow rapidly."

"This report offers conclusive evidence that immediate action by the Administration is needed to curb China's currency manipulation, which, along with China's blatant trade violations, are having the same devastating impact on high-tech production that they've already had on the nation's longstanding industrial base," said Scott Paul, executive director of the Alliance for American Manufacturing (AAM), a partnership of America's leading manufacturers and the United Steelworkers union.

"We urgently need a national strategy for restoring America's global leadership in manufacturing," he added. "Challenging China's currency manipulation would be an important first step toward developing such a strategy. It would not only cut unemployment, it would result in a much-needed increase in federal revenue."

According to a blog notice by the Coalition for a Prosperous America today, Majority Leader Reid has filed for cloture on the Senate currency bill that was filed last week. This bill is the Brown-Schumer-Graham-Snowe-Stabenow-Sessions-Casey-Burr Currency Exchange Rate Oversight Act of 2011 (S. 1619), which is the consensus bill negotiated among Senators to deal with Treasury's oversight role as well as the Commerce Department's role in countervailing duty investigations. Reid's announcement means that there will be vote on the cloture on Monday, October 3, 2011, followed by debate on the currency bill and a vote on the bill. A similar bill, H.R.639, was introduced recently in the House and had 206 co-sponsors as of last week.

The EPI report cites Foreign Direct Investment (FDI) as another key factor in the job loss. FDI is money invested in China by other countries, such as the United States. It can take the form of American companies buying or building plants in China to move manufacturing operations to China. When outsourcing to China first occurred in the mid 1990s, American companies just outsourced parts and assemblies to Chinese companies. Then, it became the trend to outsource whole product lines to Chinese companies. The next step was for American companies to buy or build new plants set up as subsidiaries in China to manufacture their products. The report states that "China is the largest recipient of FDI of all developing countries and is the third largest recipient of FDI over the past three decades, trailing only the United Stated and the United Kingdom. Foreign-invested enterprises (both joint ventures and wholly owned subsidiaries) were responsible for 55 percent of China's exports and 68 percent of its trade surplus in 2010. Outsourcing -- through foreign direct investment in factories that make goods for export to the United States -- has played a key role in the shift of manufacturing production and jobs from the Unites States to China since it entered the WTO in 2001."

The EPI research does not make a forecast of how many more American jobs may be lost in the future due to China's manufacturing cost advantages and questionable trade policies. The damage, of course, did not suddenly end in 2010, and is almost certainly ongoing. And, of course, "the U.S. is piling up foreign debt, losing export capacity, and faces a fragile macroeconomic environment."

The report concludes that "the U. S. trade relationship needs a fundamental change. Addressing the exchange rate policies and labor standards issue in the Chinese economy are important first steps."

I think it's high time that these issues are addressed by Congress. I've watched one company after another outsource manufacturing to China in my sales territory in Southern California as a manufacturers' sales rep for American companies. I've personally witnessed my customers who are engineers and purchasing agents at these companies lose their jobs and have increasing difficulty finding replacement jobs. My career in manufacturing includes the major recessions we have experienced since 1980, and I have never known so many people out of work for so long. The joblessness problem in the U.S. is so serious that any added erosion of employment opportunities from our trade deficits with China will make a recovery of the American economy all the more difficult.