Even If You Didn't Lose Your Job To Chinese Trade Games ...
March 24, 2010 - 6:52am ET
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Sen. Chuck Schumer (D-NY) is seeking a May vote on dealing with Chinese currency manipulation. As Rachel Maddow explained about the filibuster, this falls into that category of things that are both boring and important. Boring because money and finance are unpopular topics for such common worries. Important because it affects the financial security of the entire nation.
Yesterday, Dave Johnson posted a shocking summary of a report issued on the jobs China's gaming of trade and currency practices have cost Americans (pdf) by the Alliance for American Manufacturing and the Economic Policy Institute.
As he noted, the report details that jobs in high tech industries, such as electronics, have taken a bigger hit than manufacturing. Is that all about China? Pretty much. It turns out that if China is taken out of the equation, the US ran a promising export surplus in advanced technology products from 2002-2008. With the Chinese figures added in, we've got a $61 billion worldwide trade deficit in advanced technology.
Because so few paid attention when it was high school graduates, trade school trainees and skilled trade apprenticeship opportunities vanishing like smoke, now the job losses are coming home to people who thought an engineering degree was a lifelong meal ticket. Welcome to Burger King (TM) with the rest of us, I guess.
Other perhaps surprising impacts are the ripple effects of these losses on those who are still employed, and the effect on the overall economy. Emphasis mine:
... Competition with low-wage workers from less-developed countries has also driven down wages for other workers in manufacturing and reduced the wages and bargaining power of similar workers throughout the economy. The impact has affected essentially all production workers with less than a four-year college degree—roughly 70% of the private-sector workforce, or about 100 million workers. For a typical full-time median-wage earner in 2006, these indirect losses totaled approximately $1,400 per worker (Bivens 2008). China is the most important source of downward pressure from trade with less-developed countries, because it pays very low wages and because it was responsible for nearly 40% of U.S. non-oil imports from less-developed countries in 2008.
... Further, even in the best-case scenario in which other jobs rise up one-for-one to replace those displaced by trade flows, the job numbers in this paper are a (conservative) measure of the involuntary job displacement caused by growing trade deficits and a potent indicator of imbalance in the U.S. labor market and wider economy. Economists may label it a wash when the loss of a hundred manufacturing jobs in Ohio or Pennsylvania is offset by the hiring of a hundred construction workers in Phoenix, but in the real world these displacements often result in large income losses and even permanent damage to workers’ earning power (Bivens 2008b).
Lastly, many of the mechanisms that help push back against employment losses from growing trade deficits are not operating in the current recession (or jobless recovery). The Federal Reserve cannot cut interest rates any lower than it already has, and interest-sensitive industries like residential construction are not seeing employment gains from lower rates. In short, in today’s economy with high rates of unemployment, jobs displaced due to trade deficits with China are much more likely to be actual net, economy-wide losses, not just job reallocations. ...
As China's currency manipulation and dollar hoarding suppresses its own public investment and the purchasing power of its growing middle class, it's also steadily destroying the purchasing power of their main consumer market, the American middle class, while the world is facing a savings glut and insufficient demand.
An American doesn't need to have directly lost a job to have lost wages, to have lost purchasing power in their communities, and perhaps decreased demand for their own services. Indeed, I guarantee that when the plight of manufacturing causes population declines in affected communities, when 15% of tooling and machining companies go out of business in a single year, neighbors who never set foot in a factory or workshop lose business, too. In a time when all the usual policy responses are either sluggish, broken, or starved of tax revenue, the situation is helping dismantle our economy and crack its foundations.
Dealing with the currency hoarding and unfair subsidies at the root of all this certainly seems like the only decent option at present. We've tried just asking, and whatever could be said about Obama, he knows how to ask an opponent for something politely, but all we've gotten back has been Chinese indignation.
There have been worries that the Chinese could retaliate by trying to ruin entire US business sectors, but they're already doing that. There have been worries that they could retaliate by massive divestment in the US, but even if they don't end up starting a massive sell-off that reduces the value of their own holdings, they can't do it without equalizing the currencies--which is exactly what we've been asking for.
In other words, while I'm sure the Chinese will do something to push back, both countries are standing in the same puddle of gasoline holding a match--if one falls, the country left standing won't end a winner. There's only one rational thing to do in a situation like that, which is to try and get the hell out before something stupid happens.
And something stupid always happens.
If any of us want a functioning economy back, the trade playing field has to be leveled, starting with currency values. (And I'm willing to concede that the US' nose isn't entirely clean on trade fairness issues, either, we have work to do.) While there's a long slog waiting between the world as it is as a fair trade future of moderately more self-sufficient nations, we have to start somewhere.
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