Is China’s economy threatening U.S. jobs?

Some politicians and analysts claim that China’s rapid economic growth and its surging exports to the United States are depriving millions of American workers of jobs and threatening our living standards.

Don’t believe them. China’s growth helps many more Americans than it harms, and those who consider it a major threat are overlooking solid analysis to the contrary.

First, some facts about China’s growth and its export prowess. China now has the world’s most dynamic economy: since 1979, its output per person has quadrupled and poverty has declined by two-thirds. China’s exports to the United States have increased five times since 1995, and now these exports are almost six times as large as our exports to China.

Analysts who consider China’s growth a threat start with facts like these, but then develop misleading, even frightening, arguments. Sens. Charles Schumer (D) of New York and Lindsey Graham (R) of South Carolina argue that the increase in China’s exports to the United States has played a major role in the loss of three million U.S. manufacturing jobs. Schumer and Graham advocate huge tariff hikes to reduce imports from China.

First, we must correct the misleading analysis, and then consider the many benefits to Americans of China’s economic success.

First, the mistaken analysis. Imports from China actually have caused little U.S. job loss. A 2006 study by Fred Bergsten, director of the Institute for International Economics, and three co-authors shows that Chinese imports mainly are replacing goods formerly imported from other low-wage countries. If we stopped importing from China, we would import much more from such countries as India, Turkey and Mexico. Our total imports would be largely unchanged.

Next, job losses in industries that compete with imports have little influence on our total employment. Our total employment is determined, instead, by our total spending on consumption, investment and government programs, and we can greatly influence this spending through our budgetary and monetary policies. Within this overall employment total, some industries of course will lose jobs over time, but these losses will be offset by hiring in other industries.

This analysis is supported by the data. Since 1995, even as our imports from China have surged, our unemployment rate has remained below 6 percent and total U.S. employment has increased by 18 million.

The bottom line is that imports from China have had little effect on total U.S. employment. Admittedly, the Chinese currency is undervalued, as Schumer and Graham argue, and this is one reason among several for China’s growing exports. Still, Chinese exports have not reduced U.S. employment, and the Chinese have begun gradually to revalue their currency.

The benefits to Americans of China’s rapid economic growth are great. First, Chinese products are inexpensive – and this of course explains our rising imports. You and your family almost certainly benefit from these low prices. Look in your clothes closet and your garage, count the “Made in China” products and then ask yourself why you purchased these products. Low-priced Chinese imports have helped tame our price inflation.

Further, because our imports from China are larger than our exports to her, we receive more goods than we send. A country gains when it gets more goods from other countries than it ships to them.

China has used many of the dollars earned through its export surpluses to buy U.S. Treasury bonds and other securities. So China is sending us goods, and in return is acquiring our bonds – effectively lending its dollar earnings back to the U.S. Treasury.

Hold on – it gets better. China’s purchases of U.S. bonds tend to raise bond prices, which leads to lower interest rates, including mortgage rates. Americans have benefited from low mortgage rates by refinancing home mortgages cheaply and then have used the resulting savings to buy more consumer goods. Oddly, China indirectly has helped finance the recent rapid growth of U.S. consumer spending.

Still, Chinese purchases of U.S. securities do create a potential problem: sudden sales of these securities could lead to depreciation of the U.S. dollar and higher U.S. interest rates. China watchers believe, however, that sudden large sales are unlikely.

Because Americans benefit greatly from China’s rapid growth, we have much to lose if its growth falters. And in fact there are serious threats to China’s continued rapid economic growth and to the political stability on which it clearly depends:

? Lack of abundant natural resources, compared to other large countries;

? The burden of thousands of inefficient, overstaffed, state-owned companies;

? Urban disaffection because of inadequate social services, such as medical care, and the absence of religious freedom and freedom of the press;

? Rural unrest because corrupt local governments have been seizing peasants’ land.

If the economy falters, massive popular upheavals will likely follow, and the government may react by even harsher repression of civil liberties, as it did following the Tiananmen Square demonstrations of 1989.

We should reject the huge tariff increases proposed by Sens. Schumer and Graham. This proposal is based on mistaken analysis and would harm U.S. consumers. Instead, for our own sake and for the sake of the many Chinese who seek greater civil liberties, we should encourage political stability and economic growth in China.

Edwin Dean, a seasonal resident of Vinalhaven, writes monthly about economic issues.