While American textile workers may be getting hit, China's export surge overall is not displacing American workers but alternative suppliers around the world. Because labor is four times more expensive in Mexico than in China, China has overtaken Mexico as America's second-largest trading partner. China's exports in the electronics industry have driven out similar exports from competing higher-cost Asian economies. The real victims of China's formidable production cost advantages are its emerging-market competitors. And American consumers have been the beneficiaries. Since 1997, U.S. consumers have saved about $100 billion a year in import bills as lower-priced goods, primarily from China, have supplanted goods from other regions.
U.S. businesses have been a force behind China's export performance. Foreign-owned companies and joint ventures between Chinese and foreign investors, many of them American, produced much of China's exports over the last decade. Foreign companies currently account for about 50% of China's exports and about 60% of its imports.
China's large trade surplus with the U.S., heading toward $130 billion this year, obscures the fact that China is also a voracious importer. Since 1995, China's imports have grown twice as fast as U.S. imports. This year, sales to China will account for nearly three-quarters of the increase in Japan's exports, 40% of the rise in Korea's exports, 99% of the boost in Taiwan's exports, and about a quarter of the increase in U.S. exports. China is America's fastest-growing export market, expanding at an annual rate of about 20%. American companies sell $20 billion worth of goods to China.
Finally, China is nurturing America's economic expansion by helping to keep U.S. interest rates low through substantial purchases of government debt. During the past year and a half, China bought more than $100 billion in U.S. government securities. China is a primary source of funding for the U.S. fiscal and current-account deficits.
The U.S. current-account deficit is large and rising. It is financed by the Chinese, Japanese, and other central banks of Asia that are channeling the substantial domestic savings of their populations into funding the spendthrift, debt-ridden ways of Washington.
The growth of the world economy today depends on a simple logic -- the U.S. spends, and Asia lends. Protectionism threatens to upset this logic, as the recent sell-off in dollar assets following the unilateral imposition of quotas on Chinese textiles by the Bush Administration indicates. Alan Greenspan recently warned that new protectionist initiatives in the context of wide current-account imbalances could erode the flexibility of the global economy. Such initiatives could roil currency markets, undermine capital flows, and strangle the nascent global expansion. Are a few votes in a few swing states really worth the risk? Laura D'Andrea Tyson is dean of London Business School.