By Richard A. McCormack
As China rises, American tumbles. That is the story told by a new report from the United States-China Economic and Security Review Commission describing the economic performance of the United States and China since China was admitted into the World Trade Organization in 2001.
In virtually every important economic indicator, China has been growing at exponential rates while the United States suffers death spirals in jobs, income, wealth and prestige. “You can’t fudge the numbers,” says Charles McMillion, president of MBG Information Services and author of the report, “China’s Soaring Commercial and Financial Power: How It Is Affecting the U.S. and the World.”
For the past 10 years, China’s economy has grown four times faster than the U.S. economy, and the U.S. economy has grown slower than the world economy. An economy that is growing slower than the world economy should have a trade surplus, yet the United States over that period has racked up $6 trillion worth of deficits. China’s surpluses have reached $2 trillion, a huge number for an economy with an annual GDP of $4.5 trillion. China has done this with “fundamentally protectionist policies” that have “broadly undermined the most productive sectors of U.S. industry,” according to McMillion.
The consequences of the U.S. government’s decisions not to aggressively pursue China’s trade practices have proven tragic for millions of Americans. “We simply could not sustain this level of debt and when something is unsustainable it stops and sometimes it stops unpleasantly,” says McMillion.
Because of massive trade deficits with China, “every U.S. manufacturing sector lost a substantial portion of its jobs as did virtually every sector that is exposed to imports from China or offshore outsourcing,” according to McMillion. “The broad, once incomparable and dynamic U.S. supply chain of manufactured goods and services is clearly weakening and shifting quickly to China.”
The U.S. textile industry has lost 63 percent of its jobs since 2001. Communications equipment has shed 47 percent of its jobs and motor vehicles and parts has lost 43 percent of its workforce since 2001. That industry has suffered more than $1 trillion in global trade deficits over the past eight years. China has now surpassed the United States as the world’s largest automobile market and is expected this year to surpass Japan as the world’s largest auto producer.
China is out producing the United States not only in cars but in televisions, cell phones, steel, semiconductors and aluminum. China surpassed the United States as the world’s largest export nation in 2007. The United States ranks behind Germany in that category as well.
In the important “advanced technology products” sector, the United States ran its first trade deficit in 2002, and losses have ballooned since. “Traditional U.S. strengths in aerospace production are now threatened and even semiconductor production, one of China’s key technology weaknesses, is now quickly migrating to China,” says the study.
Things could get even worse for America. “Now, urgent cost-cutting pressures in the economic crisis provide further incentives for U.S. consumers, businesses and government agencies to displace domestic [U.S.] production with cheaper imports or offshore outsourcing even as debt soars,” according to the study.
China is now home to the world’s largest bank, insurance company and telecommunications firm. It has the world’s second largest oil company and holds the largest reserves of foreign currencies of any nation on earth. Its political leadership is now “lecturing the U.S. on economic management,” notes McMillion.
Industrial production is on a steady upward trajectory in China, but not in the United States. In February of this year, U.S. industrial output declined to a level that was 3 percent lower than in February 2000. It is the first nine-year decline since the period from November 1929 to November 1938, writes McMillion. “There were fewer private sector jobs in the United States in February 2009 than there were in February 2001, for the first eight-year decline in private sector jobs since 1927 – 1935. Net worth per capita is down 6.2 percent from 2000 to 2008. Federal debt is projected to increase by $2.72 trillion in 2009, roughly three times the total federal debt accumulated in its entire history (including the Civil War, depressions, and two world wars) before 1980.”
The response to this economic calamity are warnings against “protectionism from global importers and even from China,” notes McMillion. “It is, perhaps, understandable that large, self-interested global firms, wherever they are incorporated, champion unregulated commerce and finance. But China’s recent, elevated rhetoric aimed at the U.S. is especially hypocritical. Indeed, vigorous “protectionism” is the very core of China’s public policies and of its remarkable recent success. It is the reason China devalued its currency by 50 percent in January 1994, why it has so carefully managed its currency ever since and how it has amassed $2 trillion in foreign currency reserves since the Asian financial crisis of 1998. Protectionism is why China maintains strict government ownership of its banking and financial firms, even as they have gained access to world equity and bond markets.”
China is doing whatever it can to beat the United States in global trade. “It increased export rebates to 17 percent in January 2009 for industrial robots, inertial navigation systems for aviation and 551 other types of high tech and high value-added electrical and non-electrical machinery and parts and to 14 percent on exported motorcycles and various appliances,” notes McMillion. These border adjustable taxes are allowed under the rules of the World Trade Organization, and every country in the world uses them to their advantage in international trade, save for the United States.