Assembling the Benefits of Trade With China

Daniel Griswold, in a January 26, 2011 Washington Times article, notes:

China has become the final assembly operation in a global factory. Since 1990, imports from China have grown from 3 percent of total U.S. imports to 17 percent, a huge increase in market share by any measure, but that growth has come almost entirely at the expense of imports from China’s Asian neighbors. During that same period, the share of U.S. imports from the more developed Asian economies — Japan, South Korea, Taiwan, Hong Kong and Malaysia — has plummeted from 31 percent to 13 percent of total U.S. imports. Overall, imports from those countries combined with China have remained a steady 30 percent of U.S. imports since China entered the World Trade Organization in 2001.

For Stoa debaters researching the U.S./Asia trade topic, this suggests claims that the U.S. is being “flooded” by Chinese imports is misleading, at best. Japan, South Korea, and Taiwan along with the U.S. have invested billions of dollars in manufacturing facilities in China, with parts shipped back and forth across borders before final assembly with lower-cost labor in China. Griswold explains:

As a result, most of the products we import from China are not really “Made in China” in any real sense of the term. The consumer electronics and other more sophisticated products we import from China typically are designed and engineered outside China and built with more expensive components made outside China. The products are assembled in China, but even that lower-end work is usually performed in factories owned and managed by multinational corporations outside China.

Students should understand there are no fixed number of jobs in the world. If a million more workers in China are hired in China, that doesn’t mean a million jobs are lost in the U.S. or in some other country. There is no fixed limit to jobs in the world and no fixed limit to “good jobs” either.

When the Chinese government finally allowed U.S., Japanese, Taiwanese, Hong Kong, and South Korean companies to invest and build factories in China, and to hire and train Chinese workers, their hard work and long hours at relatively low pay benefited consumers all over the world. And as earlier posts have discussed, first jobs for Chinese migrants from rural areas are often very low pay (because the rural workers were very low skills). But as the months tick by, skill levels increase and hourly pay rises too.

Taiwanese company Foxconn employs some one million people in China to assemble Apple, Dell, Microsoft, HP and good for other companies. Those factories could be located instead in the U.S., Japan, Taiwan, or Europe, and assembly workers hired in those countries. But the cost of assembly would be significantly higher, and fewer workers would have been hired to assemble the fewer number of each product likely purchased at higher prices.

Plus the one million workers Foxconn employs in China, under an alternate “Made in the U.S.”, Japan, or Europe scenario, would have less access to assembly jobs that pay more than others available to them in China. So they would be saving less, and eating less at McDonalds in China, and would be buying fewer goods and services from U.S. and other companies.

Critics of trade with China include many U.S.-based manufacturing firms and unions, and the trade associations and politicians they support. The Economy in Crisis website, in “Imported Chinese Auto Parts Destroying American Jobs” (May 30, 2012), argues China is trading unfairly:

China is notorious for not playing by the rules in international trade. While the country demands open access to the U.S. market, it subsidizes its own industries to gain an advantage in the international marketplace. 

The article cites a study claiming “In the last decade, Chinese auto part exports increased by over 900 percent.”:

According to a study by the Economic Policy Institute, the United States has regained only 60,000 jobs in the auto parts manufacturing industry since the worst point of the recession in 2009. Auto manufacturing has seen gains, but the influx of cheaper Chinese parts has meant that United States parts manufacturers are not reaping the benefits. In the last decade Chinese auto part exports increased by over 900 percent, putting immense pressure on American competitors.

But as Dan Griswold notes above, much of that increase is just shifting final assemble of auto parts that had been produced in South Korea and Japan before major car assembly factories were running full speed in China. Plus those jobs in China helped hundreds of millions reach middle-income as they worked to supply goods to the world. And with their savings and higher incomes, millions of Chinese are buying cars.

Since 2013, General Motors has sold more cars in China than in the U.S.:

Despite signs of a slowdown in the Chinese economy, General Motors posted record first-half sales in China, where GM sales now have surpassed the total number of vehicles the company sells in its home market of the United States. (CNBC source, July 2013)

The Economy in Crisis article concludes:

Our auto parts sector has been a vital part of the American economy for years, and now it is at risk of disappearing because of our flawed free trade policies. 6.5 percent of all jobs in Michigan are still in auto parts manufacturing, but if we do not take action those jobs may be lost as well. We have tried free trade, and it has failed us. It is time to go back to what works for Americans.

Lower cost cars and auto parts imported to the U.S. benefit consumers, as well as reduce global inequality by raising wages in developing countries like China. This short LearnLiberty.org video “Trading Away Income Inequality: the Effects of Globalization” gives a glimpse of the uplifting process of international trade and investment.

Two images from the “How to Fight Global Poverty” video show the astonishing reduction in the percentage of people living in absolute poverty in China, from 1981 to 2007.

…China and India have been instrumental in reducing global poor in recent years, lifting a combined 232 million people above the international poverty line from 2008 to 2011, the World Bank said in a report released last week. China, on its part, lifted nearly 90 million people out of poverty, according to the report. (WSJ China Real Time blog, Oct. 15, 2014)