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Here we go again. In the Washington Post's 'Wonkbook,' [1] Dylan Matthews trumpets the tired old canard that American consumers benefit from the low price of Chinese imports.
Matthews cites a University of Chicago study that tried to estimate how Chinese exports have affected the cost of living for low-income Americans. They found that non-durable goods from China comprise a much bigger share of low-income Americans’ spending than that of wealthier U.S. consumers. Because of this, "from 1994 to 2005, inflation among poor U.S. households grew 6 percentage points slower than among rich households."
Basically, the study is saying that poor America shops at Wal-Mart and CVS. And this is great because those folks can buy low-cost goods there.
It's a great, simple theory. But it also overlooks the overall ramifications of an increased reliance on exports. The wider long-term national cost of our mushrooming trade deficit [2] with China is closed factories, lost jobs, and stagnant wages. In fact, the Economic Policy Institute (EPI) found that the trade deficit with China has cost 2.7 million U.S. jobs [3], 2001-2011.
On a personal note, I was one of those low-income Americans. When I lost my job in the 2001 recession, I was unemployed for nine months. All I could find in that time was a job at a bookstore. I earned roughly $6.50/hour. After taxes, I was earning roughly $5.35/hour. A typical, non-durable good, like the ones Matthews celebrates, was a regular-sized Speed Stick deodorant. At CVS, it cost $4. So, it was taking me almost one hour to earn the money to buy one household good.
When we lose good-paying jobs, we can’t afford to buy much of any supposed low-cost imports. To me, Matthews blog piece is frustratingly elitist.
One more example: A paper mill worker in Wisconsin is earning $70,000/year, with benefits and healthcare for his family. Thanks to China's massive subsidization [4] of its paper industry, plus its illegal currency manipulation [5], he loses his job. Now, he's earning hourly wages while working at Wal-Mart or CVS. How does he support his family, pay for healthcare, put his kids through college?
Sorry, Matthews, your viewpoint doesn't hold up in the real world.
Links:
[1] http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/22/how-china-is-fighting-inequality-in-the-united-states/
[2] http://www.census.gov/foreign-trade/balance/c5700.html
[3] http://www.epi.org/publication/bp345-china-growing-trade-deficit-cost/
[4] http://americanmanufacturing.org/content/no-paper-tiger-subsidies-china’s-paper-industry-2002-2009
[5] http://americanmanufacturing.org/blog/okay-so-chinas-currency-clearly-undervalued-whats-anyone-gonna-do-about-it