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The tendency to blame China for U.S. job losses, warns economist Stephen Roach of Morgan Stanley, is more than just misguided. It also raises the specter of a dangerous shift toward protectionism.
With more than 2 million U.S. factory jobs lost in recent years and no sign of a turnaround in hiring, vote-counting politicians have been pointing accusing fingers at China. By doing so, they are reinforcing the view that China's astonishing export-led growth reflects unfair tactics by the country's exporters and their government's refusal to revalue its currency, which has been tied to the dollar since 1994. On both counts, this view is wrong, says Roach. To be sure, China's exports have tripled in the past decade, and its trade surplus with the U.S. has exploded from $30 billion to $103 billion. But the impetus for this export-led growth has come from a surge of foreign direct investment from the developed world.
Fully 65% of the growth in Chinese exports over the past decade, notes Roach, has been generated by subsidiaries or joint ventures of global multinationals. The rising U.S.-Chinese trade deficit, he notes, "is an unmistakable outgrowth of the U.S. penchant for outsourcing and China's rapidly emerging role as a global outsourcing platform of choice." Indeed, companies based in North America, Europe, Japan, and other Asian nations invested $53 billion in Chinese facilities last year, making it the world's largest recipient of foreign direct investment.
What's more, China's domestic market is far from closed. Its overall trade surplus is relatively small. And it runs substantial trade deficits with its Asian trading partners ($31.5 billion with Taiwan in 2002), which ship components and parts to China that are assembled into final export products by its low-wage workers.
Chinese imports from the U.S. are also taking off. Last year, U.S. sales of aircraft to China soared 42%, to $3.1 billion, and sales of integrated circuits jumped 38%, to $1.2 billion.
The bottom line is that China has become an integral part of the global supply chain, and, Roach notes, "the high-cost industrial world needs China for its competitive survival." Roach doubts that an upward revaluation of China's currency by 10% would affect its exports very much.
A truer culprit in U.S. trade woes, he says, is the savings-short U.S. economy. It is an iron law of economics that as long as a nation chooses to invest more than it saves, it must import foreign capital to make up the shortfall -- which means running a trade deficit.
With the federal deficit exploding and private saving still anemic, Roach sees an even larger trade gap ahead. "Should China be blamed for Washington's reckless fiscal adventures?" he asks. Back in 1997, Congress passed a program of higher-education tax credits aimed at raising college enrollments. The credits were targeted mainly at middle-class students, who were ineligible for the federal aid available to low-income students .
Thus far, however, the program appears to have been a victim of the law of unintended consequences. In a recent study, Bridget Terry Long of Harvard University finds that the credits -- which totaled $4.9 billion in 2000 -- did indeed mostly flow to households in the $35,000-to-$75,000 middle-income range. But she also finds little evidence that the tax credits boosted overall college attendance by such students -- or students in other income groups. About the only discernible effect was a slight pickup in enrollments in four-year institutions relative to two-year colleges.
If anything, the study found that it was colleges and states that may have reaped gains from Washington's generosity. Since the tax credits offset tuition and fees, many low-cost two-year schools apparently decided to accelerate tuition hikes, as did four-year colleges in states with large financial-aid programs. And that, Long notes, may help explain the muted impact on college attendance. A few years ago, researchers reported that Americans were far more confident than Europeans that their work effort will pay off in pay hikes and promotions. Unfortunately, those sentiments seem to be waning. A new Conference Board survey, indicates that just 49% of Americans today are satisfied with their jobs -- vs. 58% in 1995, the first time the survey was done. Only 20% are satisfied with their employer's promotion and bonus policies and just a third with their pay.
Job satisfaction fell most among prime-years workers aged 35 to 54. And it was down sharply among workers in the $50,000-plus income group -- to 53% from 67% in 1995.
One source of grievance seems to be the ongoing efforts of employers to squeeze more work out of reduced staffs. Although this has resulted in big productivity gains, some economists fear that the discontent such efforts have fueled could well hurt productivity over the long run.