Has China Really Stolen American Jobs?
When U.S. President Barack Obama delivered his 2011 State of the Union address, the theme was jobs, jobs, jobs. A week after what was a very productive visit from China’s President Hu Jintao, some U.S. policymakers (and even some business leaders) are still repeating the call to “take back” American jobs from China. With all of the political rhetoric swirling around, where does the truth lie? Have American jobs really been lost to China? Does America need to “regain its competitiveness”?
First let’s consider the facts:
Critics of economic integration argue that it hurts American workers. Yet the data refute that claim.
Between 1978 and 2008, the real value of goods and services imported to the United States increased 482 percent, from $328 billion to $1.9 trillion (in 2000 dollars) – reflecting the dramatic increase in global economic integration. At the same time, people in America got much richer; real GDP expanded by 132 percent and total civilian employment rose by 49.3 million jobs.
To be fair, the massive benefits that accrue to American businesses, consumers and workers from economic integration don’t mean that there is never any pain involved. In the transitions caused by integration – industries like textile manufacturing moving to other countries where they can be run more efficiently, for example – workers do lose jobs. But those jobs were in industries in which the United States was not competitive on a global scale. And they are more than replaced by jobs in industries in which the U.S. is competitive – most often, industries that pay workers more money.
Those 49.3 million new jobs and 132 percent more income created during the 1978-2008 period of expanding integration reflect the fact that technological advancements and productivity improvements raise not only the number of jobs for U.S. workers but also the quality of those jobs. Those improvements are made possible by economic integration, by the fact that U.S. workers are freed to move from uncompetitive industries like textiles to competitive industries like high technology.
“By allowing Americans to specialize in what they produce best, free trade raises productivity, wages and living standards for the large majority of workers. Like technology, it leads to new products and new industries while enabling workers to produce more in a given hour of effort.”[1]
In the early 1800s, textile workers in Britain revolted against the Industrial Revolution by destroying labor-saving weaving machines because they believed that those machines would lead to job losses and lower wages. Imagine if those textile workers – now famously now known as “Luddites” after their mythical leader – had been successful in preventing the development of the weaving machine? Standing against economic integration in the name of protecting domestic jobs and wages would be to impede the very technological progress and productivity enhancements that make all our lives better.
Read more about the costs and benefits of economic integration (trade) in the white paper, “Who the Heck Cares About Trade?”
People in countries that are economically integrated are wealthier as a result of their integration.
There are four reasons why:
1) Economic integration gives the less-developed trading nation (e.g., China relative to the U.S.) access to foreign know-how (technological capital), which it can then adopt to become more productive.
2) With economic integration, barriers to adopting better technologies are lower.
3) Economic integration allows more rapid diffusion of knowledge.
4) More economic integration leads to more competition.
Read more about the power of economic integration
“Protecting” American jobs is very costly.
According to the Federal Reserve Bank of Dallas, the cost of saving American jobs is nearly $100 billion a year. In 20 of the most protected industries, protectionism saves 191,764 jobs a year at a total annual cost of $44.4 billion, or $231,289 per job per year.
And, important to note, protecting one industry or sector often has the unintended consequences of hurting another. For example, workers in industries that use steel outnumber workers in industries that produce steel 57 to 1. So imposing tariffs on steel imports, which raises the price of steel, can harm American workers in those industries that have to buy steel. Read more about the consequences of “protecting” American jobs
Then some perspective from the US-China trade experts:
Clyde Prestowitz: “America must compete to retrieve its lost prosperity.”
Clyde Prestowitz is president of the Economic Strategy Institute, a former US trade negotiator, and FutureofUSChinaTrade.com scenario moderator. In his imagination of the future of trade between China and the U.S., he writes that “the U.S. has been experiencing an erosion of economic productive power. America’s telecommunications infrastructure, critical in an interconnected global economy, now ranks 15th in the world. And in a key emerging industry – clean energy – the U.S. has lost its competitive edge. What’s more, because of high business tax rates and a lack of federal incentives for businesses to locate here, the U.S. has become relatively unattractive for investment. In other words, America’s wealth-producing capacity has waned. It’s not irretrievable, but the hour to do so is getting late.”
But Clyde stresses that a future in which America regains its competitiveness “is not about the U.S. stopping China from being successful. It’s not a zero-sum contest. It is instead about America doing what China has long done – competing, for its own self interest. It is about America doing what is good for America.” Read more from Clyde Prestowitz
Peter Yam: “Competitiveness is key for the future of US economic prosperity.”
Peter Yam is the former President of Emerson Greater China and Chairman of Emerson Electric (China) Holdings Co., Ltd. He writes that “I believe that the ‘America Competes’ approach will be the key for the future of the US economic prosperity. Such technology industries as automobile, airplane and software used to be the pride of the US economy are now in a miserable state. Both the lawmakers and the government must wake up and exert leadership in providing an environment for the US firms to become effective global competitors again and regain its strength on exports. Raising the level of general education, improving the environment for investment and providing incentive for capital spending on innovation are a few things that need to happen.” Join Peter in the discussion
Jim Jarrett: “Fundamentally this isn’t a China issue; it’s a U.S. competitiveness issue.”
Jim Jarrett is the former President of Intel China. He says, “The fact is that China will do what is in its best interest. So we need to start off with that recognition: China will do what’s right for China, and that makes sense for them. And we have to do the same thing. Fundamentally this isn’t a China issue; it’s a U.S. competitiveness issue. The U.S. needs to take charge of its competitiveness in a much more active way than it has in the past. We’re really in a global competition for jobs and we need to get out there and do what we need to do.”
Jim then goes on to talk about how American policies affect its ability to attract businesses. “We need to face up to the fact that those jobs are going to go elsewhere unless America is competitive in its policies. That’s the kind of thing that I would be emphasizing. So it’s all about jobs. America has a structural employment problem. To solve it, the U.S. must do better to attract businesses.” Read more from Jim Jarrett
Bob Mittelstaedt: “On whole, over the long term, freer trade benefits us all.”
Bob Mittelstaedt is dean of the W. P. Carey School of Business at Arizona State University and a FutureofUSChinaTrade.com scenario moderator. In his imagination of the future of trade between the U.S. and China, he writes, “Clearly, looking only at the U.S. side of the free trade equation (the picture looks similar everywhere), there are, over the short-term, winners and losers as a result of our freeing of trade. For young generations, education will take a new focus on services and the other industries in which the U.S. (or whichever country) holds a comparative advantage. For older generations, the government may have to step in to smooth the transition from one industry to another – with retraining or, in some cases, early retirement. Yet over the long term, and on net, we all benefit from free trade.”
“Over the long-term, market flexibility – the ability of the education system to teach new skills, the ability of producers to produce different goods and services – is critical, because in a world with truly free trade comparative advantages constantly change. Those countries best able to adapt to those changes will grow the fastest. Everyone realizes economic gains, because they’re doing what they are best at and buying what they can’t produce most productively. It’s economic efficiency at its finest.” Read more and join Bob in the discussion
[1] United States Trade Representative, “2008 Report to Congress on China’s WTO Compliance,” December 2008, p. 4.
