Abstract:This article describes the current economic situation and the interaction between China and America and make some advice about how to get the economic relationship between the two countries "right." That means stable, growing, mutually beneficial, and supportive bilateral relations.
Name:Yuan Lei   Student ID：S07633
Research paper supervisor:Dr.Seku Conde
Minzu University of China
2007-2008 Academic Year
 
Key words: current situation; background;  economic cooperation
 
 
Costly Trade With China:Millions of U.S. jobs displaced with net job loss in every state
Contrary to the predictions of its supporters, China's entry into the World Trade Organization (WTO) has failed to reduce its trade surplus with the United States or increase overall U.S. employment. The rise in the U.S. trade deficit with China between 1997 and 2006 has displaced production that could have supported 2,166,000 U.S. jobs. Most of these jobs (1.8 million) have been lost since China entered the WTO in 2001. Between 1997 and 2001, growing trade deficits displaced an average of 101,000 jobs per year, or slightly more than the total employment in Manchester, New Hampshire. Since China entered the WTO in 2001, job losses increased to an average of 353,000 per year—more than the total employment in greater Akron, Ohio. Between 2001 and 2006, jobs were displaced in every state and the District of Columbia. Nearly three-quarters of the jobs displaced were in manufacturing industries. Simply put, the promised benefits of trade liberalization with China have been unfulfilled.
As a matter of policy, China tightly pegs its currency's value to that of the dollar at a rate that encourages a large bilateral surplus with the United States. Maintaining this peg required the purchase of about $200 billion in U.S. Treasury Bills and other securities in 2006 alone.[1] This intervention makes the yuan artificially cheap and provides an effective subsidy on Chinese exports; best estimates are that the rate of this effective subsidy is roughly 40%. China also engages in extensive suppression of labor rights; it has been estimated that wages in China would be 47% to 85% higher in the absence of labor repression. China also have massive direct subsidization of export production. Finally, it maintains strict, non-tariff barriers to imports. As a result, China's exports to the United States of $288 billion in 2006 were six times greater than U.S. exports to China, which were only $52 billion China's trade surplus was responsible for 42.6% of the United States' total, non-oil trade deficit. This is by far the United States' most imbalanced trading relationship. Unless and until China revalues (raises) the yuan and eliminates these other trade distortions, the U.S. trade deficit and job losses will continue to grow rapidly in the future.
The impact of changes in trade on employment is estimated here by calculating the labor content of changes in the trade balance—the difference between exports and imports. Each $1 billion in computer exports to China from the United States supports American jobs. However, each $1 billion in computer imports from China displaces those American workers, who would have been employed making them in the United States. On balance, the net employment effect of trade flows depends on the growth in the trade deficit; not just exports. Another critically important promise made by the promoters of liberalized U.S.-China trade was that the United States would benefit because of increased exports to a large and growing consumer market in China. This market, in turn, was to be based on an expansion of the middle class that, it was claimed, would grow rapidly due to the wealth created in China by its entry into the WTO. However, the increase in U.S. exports to China has been overwhelmed by the growth of U.S. imports.[2]
Growing trade deficits and job losses
The U.S. trade deficit with China has increased from $50 billion in 1997 to $235 billion in 2006, an increase of $185 billion, as shown in Table 1. Between 1997 and 2001, prior to China's entry into the WTO, the deficit increased $9 billion per year on average. Between 2001 and 2006, after China entered the WTO, the deficit increased $30 billion per year on average.
While it is true that exports support jobs in the United States, it is equally true that imports displace them. The net effect of trade flows on employment must look at the trade balance. The employment impacts of growing trade deficits are estimated in this paper using an input-output model that estimates the direct and indirect labor requirements of producing output in a given domestic industry. The model includes 200 U.S. industries, 86 of which are in the manufacturing sector.
Growing trade deficits with China have clearly reduced domestic employment in traded goods industries, especially in the manufacturing sector, which has been hard hit by plant closings and job losses. Workers displaced by trade from the manufacturing sector have been shown to have particular difficulty in securing comparable employment elsewhere in the economy. More than one-third of workers displaced from manufacturing drop out of the labor force.Average wages of those who secured re-employment fell 11% to 13%. Trade-related job displacement pushes many workers out of good jobs in manufacturing and other trade-related industries, often into lower-paying industries and frequently out of the labor market.
The growing U.S. trade deficit with China has displaced huge numbers of jobs in the United States, and been a prime contributor to the crisis in manufacturing employment over the past six years. The current U.S.-China trade relationship is bad for both countries. The United States is piling up foreign debt, losing export capacity, and facing a more fragile macroeconomic environment. Meanwhile, China has become dependent on the U.S. consumer market for employment generation, has suppressed the purchasing power of its own middle class with a weak currency, and, most importantly, has held hundreds of billions of hard-currency reserves in low-yielding, risky assets, instead of investing them in public goods that could benefit Chinese households. Its repression of labor rights has suppressed wages, thus subsidizing its exports and making them artificially cheap. This relationship needs a fundamental change: addressing the exchange rate policies and labor standards issues in the Chinese economy are important first steps.4
China's entry into the WTO was supposed to bring it into compliance with an enforceable, rules-based regime, which would require that it open its markets to imports from the United States and other nations. The United States also negotiated a series of special safeguard measures designed to limit the disruptive effects of surging Chinese imports on domestic producers. However, the core of the agreement failed to include any protections to maintain or improve labor or environmental standards. As a result, China's entry into the WTO has further tilted the international economic playing field against domestic workers and firms, and in favor of multinational companies from the United States and other countries, and state- and privately-owned exporters in China. This has increased the global "race to the bottom" in wages and environmental quality and caused the closing of thousands of U.S. factories, decimating employment in a wide range of communities, states, and entire regions of the United States.
                                    
U.S.-China Economic Relations: A Paradox of Optimism and Apprehension
An increasing amount of China's – and the world's – economy passes. The efforts to promote the development of Central China through increased trade and investment are significant and worthwhile. United States government believe that closer U.S.-China economic cooperation benefits the development of all regions of China and the United States, not just our political and economic centers. Broad-based, high-quality economic growth that benefits the people of our countries is of utmost importance to all of us.
Deep reservoir of good will between the people of the two countries. And yet while the growing economic interdependence was once a source of stability in the bilateral relations, it is now increasingly also a source of tension, in both of the countries.
A 2008 survey that simultaneously conducted public polling both here in China and in the United States characterized these mutual perceptions between countries' two peoples as a "paradox of hope and fear." This survey, published by an influential group of Chinese Americans called the Committee of 100, shows that, on the one hand, a majority of citizens in the United States and China generally hold positive views of each other and broadly recognize the importance of U.S.-China relations and our increasing economic interdependence.On the other hand, a strong majority of Americans view China's growing economic and military power as a serious or potential threat, and nearly half of the Chinese feel that the United States is trying to prevent their country from becoming a great world power.
Both sides recognize that the most common interests lie in trade. Among Americans, trade is regarded as the most likely area of shared interests, yet it also ranks as the most likely source of conflict. There it is again, a mix of hope and fear. These concerns are straining the domestic consensus in both the United States and China on the benefits of economic engagement, leading to the rise of economic nationalism and isolationism among some [...]

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