This topic first came to me while browsing the business section of a Border’s bookstore. Admittedly, at the time, I was searching for ideas for the Research Seminar class. I was looking for a subject area that met three requirements: it had to be a business-related topic, something that would interest me, and something I knew very little about so that I could learn about something new. A couple of hours later, I was getting anxious, it was taking longer than expected and absolutely nothing drew my interest.
Then a book title caught my attention, “CHINA « INC. HOW THE RISE OF THE NEXT SUPERPOWER CHALLENGES AMERICA AND THE WORLD.” The book describes how China, “once hobbled by poverty and Communist ideology” has come to be the “supercharged center of global capitalism”. It discusses the global impact of “300 million rural Chinese walking off their farms, heading to the cities in the greatest migration in human history”.
It talks about China’s growing dominance as an industrial superpower and the profound shift in global economies and how it is already affecting all of us. I was immediately shocked, curious and fascinated. All of these are happening and I was completely oblivious to such important developments in China. I immediately knew that this was the topic for my paper. Happy with my evening’s work, I made my purchase and left the store.
On the train ride home, I began reading the book, which proved to be equally interesting and unsettling. Many of the predictions do not bode well for workers in the United States, including me! But that is good, even more reason to focus on this subject matter. Fishman is just one writer, the purpose of the paper is to research and report on the opinions and studies completed by a number of experts. Already I was coming up with the paper title “The rise of the Chinese Economy, Threat or Opportunity for the United Sates” or something of that nature.
In the following weeks, I spent many, many hours engrossed researching the growing Chinese economy and how it affects the world. It seems that the growth of China influences the U.S. in every way. Since the fall of the USSR, the world has had one superpower, the United States, now China fast and furiously is becoming the rising star and superpower of the East. Along with becoming an economic power to be reckoned with, it has a growing military strength, something the U.S. fears.
Its economic success means its people have more and want more. China is now second to the U.S. in the demand for commodities such as oil, steel, concrete, water, etc and its demands are growing, again a threat to the United States as they are competing for the same resources. A booming economy also increases the political standing of the country, so previously where the “slumbering giant” stayed out of global events that did not impact China, the Chinese government have more and more clout not only within Asia but also Europe and Latin America as well.
When the time came to write the paper, I ran into problems. I had too much information and did not know where to begin. In many ways, I had over-researched the topic but not really focused on a particular aspect. The information I had collected was enough for a book, not a chapter. This meant returning to the drawing board and revising the paper but using the information already available to me. I decided to focus on a very current topic, the role that China has in rising job losses within the United States. Thus the title for the Research Paper.
Since the World Wars, the United States of America has made its presence felt in the world scientifically, economically and politically. The United States, along with Europe, has led the world in producing new technologies, which other countries adopt, buy and imitate. The United States also wield economic and political power through its control of food and media. It is the major supplier of corn, soybeans, wheat and cotton (USDA) and he who controls food controls the world, at least the third-world countries. This is not to mention it being the foremost supplier of pesticides and fertilizers. It sells its surplus at cheap price making buying countries dependent on it. Subsequently, dependence equals power (Greene, 2000).
China is the oldest civilization and has been leading in the arts and sciences but it was set back by civil wars, famines, military defeats, and occupations. After the great World Wars, it was imposed under strict governance and not until the leadership of Deng Xiaoping that it reviewed its economy (Huang, 1997). Now, China is one of the major key players in the international markets and even sending fears to paranoids. China was once a very Communist country and it may be pitching for world dominance through economy.
The People’s Republic of China, an Asian country, has an underestimated population of 1.3 billion people as of 2003 (National Bureau of Statistics, 2003). It has the largest in the world and the target of different industries, each hoping to get even a small percentage of its buying population.
Since 1978, the Chinese economy have quadrupled its GDP and improved its agriculture and industrial sectors. Its government though is a product between socialism and capitalism.
America had been totally under the British rule until some colonies decided cry for independence in 1776. It was just a colony and now it is undeniably the most powerful country in the world leading in almost everything. Experiences such as the Civil War of 1861-65 and the Great Depression of the 1930s were the saddest part of its history (Allen, 1967). Its economy enjoys steady growth, low unemployment and inflation rates and continuous advancement in technology.
The United States of America has controlled various economies through their agriculture and military and is currently the lone superpower after the Cold War.
The US has market-oriented economy where private entities make their own decisions with the full support of the federal type of government.
According from the CIA World Factbook, the United States has the largest economy in the world, with a per capita GDP of $42,000 while China has a GDP of just $7,198 per capita. The former is known for its power, the latter for its population, but, as you know, the GDP is calculated using population. The lower GDP does not automatically mean that China is poor, only it has a large number of inhabitants. Imagine if both countries have the same population, which do you think between the two will have the greater GDP? But GDP does not dictate the richness or poorness of a country. Even with a small GDP China is actually the second largest economy in the world after the US. The reality is China’s enormous population is its biggest asset.
Furthermore, the United States with its most advanced economy is suffering a decline in its status. Though it is enjoying solid increases in real output, low inflation rates, and a drop in unemployment there are emerging problems such as inadequate investment in infrastructures, rapidly increasing medical costs, trade deficits, and stagnation of family income. This is the opposite with what is happening to China. China has become the largest trading partner of Asian countries, which are not exactly few.
The United States is doing its best to maintain its hold as the most powerful country and the rise of the Chinese economy seem to pose a threat. Feelings of dissatisfaction over the administration is being felt all over the United States worsened by the lost of jobs , which is attributed to the economy of China getting stronger?
China is beginning to influence the world. Noticeably, it is making a turn around which is not missed especially in the business community as it becomes an industrial powerhouse of the world (Kynge, 2006). The writer said that China used to account for the third of the global economy and after falling due to different conflicts, it is reemerging as a force in the world.
Different studies have been made to establish the facts behind China’s ascent to world economics and the further effects it can bring to global trade. They intended to identify the factors behind its recovery and the foundation of its economic policies.
Also, different studies intended to show the connection between the Chinese rising economy and the rising job losses in the United States. They tried to prove if there were basis for the claims that there were really links.
Results of the studies could be basis for further looking into the Sino-American trade relations and if the US and China will be continuing its agreements or if cooperation is still worth sharing.
Results provided general overview about the rising discontent among Americans and what they feel towards China and its policies. Likewise, they highlighted China’s attitude towards America and its accusations, current economic growth and its overall view to United States as a trading partner.
Numerous studies have been made regarding US economics and economics in general. Numerous studies have been made that links one country’s policy with another’s but few have had focused on China as a strong force behind them, that was until the last quarter of the century when governments and different industries recognized that China have been making a comeback and its enormous population is actually being an asset than a liability and they could profit from it.
Also, there were articles, reports and journals all devoting discussion towards the emerging economy and its effects to America and the whole world as a whole. They contain facts and figures alluding their respective claims, some true; sadly, some are not so true.
Deficit is produced when the expenditure is higher than the income. In the case of the US and China it when the outgoing dollar is greater than the incoming Yuan. In 2003, US-China Economic and Security Review Commission stated that there was a $124 billion US deficit and as of February 2006, the U.S. Department of Commerce announced that the international deficit reached a record of $726 billion for year 2005 $60.3 of which is from US-China trade relations. That is with China edging to the automobile and oil industry. Specifically, the value of Yuan, China’s currency was particularly blamed for the deteriorating US economy.
The deficit is blamed for the job losses in the United States. It was said that the deficit came from the trade deficit caused by the import-export relation of the US and the People’s Republic of China. In an article of Robert E. Scott in AsiaTimes, he claimed that the deficit with China is the reason for the allegedly 1.5 million productions or service related jobs lost starting the last decade of the century. What was alarming that those jobs were not just on the labor-intensive work but also in the once American-dominated industries like electronics and communications. This situation worsened when China joined the World Trade Organization.
Scott furthered that the most affected states in terms of numeric terms were California (199,922), Texas (99,420), New York (81,721), Pennsylvania (69,822), Illinois (69,668), North Carolina (62,698), Florida (60,026), Ohio (58,094), Michigan (50,991) and Georgia (46,848). For the total state employment were Maine (14,951, or 2.47%), Arkansas (19,123, 1.67%), North Carolina (62,698, 1.65%), Rhode Island (7,548, 1.56%), New Hampshire (9,443, 1.53%), Indiana (43,533, 1.50%), Massachusetts (46,463, 1.46%), Wisconsin (39,668, 1.43%), Vermont (4,211, 1.41%) and California (199,922, 1.39%).
There have been public outcries regarding the job losses. An example was given by then Republican candidate for the US Congress, Jay Helvey. He stresses that one of the hardest hits was the State of North Carolina suffering from huge job losses blaming the China Currency Policy and pled that the US citizens must be “armed” so that they can “fight” the unexpected losses (Helvey, 2003). China though has made changes over the years.
Expectedly, most of the criticisms were directed towards the administration. Though one out of four factory jobs had disappeared since 1979 giving a total of 2.5 million jobs lost, still, it took more than two decades to lose them compared same amount lost since Bush took office in January 2001 (Vieth, 2003). The elections even were dictated by the stands of the candidates towards the Sino-American trade. Voters were as thorough as they were regarding the Iraq issue.
As overview, US exports increased fourfold from $5.8 billion in 1989 to $26.1 billion in 2003. However, it started decreasing and it fell 2.3% to $66.5 billion this November 2006. Likewise, imports increased from $11.9 billion to $151.7 billion and unlike the export figures, it actually increased 1.3% to $155.85 billion during November. Both resulted to a Sino-American trade deficit increase.
What is interesting is that there is a very big similarity between the bulk of China’s export to the US and US’ exports to China: manufacturing goods. If the US is exporting manufacturing goods, does it make sense to import the same kind of goods as well? Under globalization it is. The aim of the free world trade is competition among products based on their quality and value (Destler and Balint, 1999). Ironic that the blueprint of the American economy is what is creating the reason Americans are claiming responsible for the job losses. Naturally, consumers would go for cheaper goods. In this case, they are obviously “Made from China.” Of course, this deal did not bode well for the US manufacturing industry as affirmed by the ballooning trade deficit.
On the other hand, though there have been a slowdown for the previous year (2005), the services and goods sectors of the United States economy achieved strong marks.
There have been increases in the services industry growing by 4.1% while the goods industry grew by 2.6%. Findings for 2005 by the Bureau of Economic Analysis are as follows:
- information-communications-technology-producing industries experienced double-digit growth of 11.9 percent in 2005, down slightly from 12.9 percent growth in 2004,
- growth in accommodation and food services accelerated to 4.8 percent in 2005, exceeding its average annual growth of 3.9 percent over the period 1995-2000, and
- for the second consecutive year, professional, scientific, and technical services growth of 7% exceeded its average annual growth of 6.9 percent over the period 1995-2000
China’s key economic indicators as published by Chinese State Statistical Bureau showed that exports in 1999 from $194.7 billion jump to $249.1 billion in 2000, which was a 27% increase. Likewise, imports in year 2000 posted an increase of 35% having a value of $214.7 billion from $158.7 billion in 1999. Both the export and import for 2001 posted an almost 10% increase. Also, notice that the manufacturing data posted an initial increase of almost 13%.
Recent findings stated that:
- China has been the receiving end of the bulk of US exports ranging from $35 billion to $71 billion in the recent years,
- exports of electronics, computers, and communications equipments are faring better in sales than that of shoes, apparel and plastic products,
- China has become one of the world’s leading largest trading nations competing with the United States and Germany as its foreign trade value reached US$1 trillion in the first 11 months of 2004, and
- Shanghai has overtaken Rotterdam as the No 1 port in terms of cargo handling an average of 380 million metric tons of shipment
So far, countries have recognized China as a major player in the market. Some of them were Malaysia, Singapore and New Zealand declaring China as having a full market economy status. This means that the Chinese government has been enjoying advantages when dealing in the foreign market (Gelken, 2006).
Undeniably, whatever some people claims, trade relations between the United States and China has brought something good for both countries. The trade has given a growth of more than $70 billion since it started in 1978 (US Department of Commerce). The United States is China’s single largest export market while China is, as mentioned, is likewise. The large population of China is also an attraction for US investors as China sales can keep a business very competitive. On the other hand, China gets the latest technology the US has.
For every rise of China in the world market, incidentally there is a corresponding fall for the United States. Allegedly, the rate of dollar versus yuan is causing tremendous blows to the US economy. The yuan has been pegged at 7.92 against the dollar since the mid-1990s, and Beijing has begun to allow a modest fluctuation in the last year or so (The Wall Street journal).
At the turn of this century, both the Democrats and the Republicans favored the new trade agreements with the world, believing that such agreements would create global markets, creating jobs and raising incomes in the Untied States. (Scott, pg 7) In 2000, the Clinton administration actively supported China in becoming a member of the World Trade Organization.
Likewise, the Bush administration endorsed new international trade agreements. In 2002, the Senate approved the fast-track trade negotiating authority (Trade Promotion Authority) which Bush described to be a “watershed moment.” It emphasized foreign trade agreements, creating jobs resulting to higher incomes for American workers (Bush, 2002).
Scott, in a research paper for the EPI, investigated Sino-American trade between 1989 and 2003 and its impact on jobs and industries in the U.S. His research paper showed that international trade agreements have indeed resulted in a growth in exports, but the U.S. trade deficit rose at an alarming rate. Between 2001 and 2003, exports to China increased by $8 billion, up 44% and during the same two-year time period, U.S. imports increased by $50 billion, or 49%”, the resulting trade deficit increased by 50%. He concluded that the growing U.S. trade deficit with China between 1989 and 2003 has displaced production supporting 1.5 million U.S. job opportunities (Scott, 1, 7).
In the mass of reports and studies, the most affected were the American people, especially the blue-collar workers. Trade Unions were angry and in March 2004, The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) filed the Section 301 Petition Against China. The Petition was filed on behalf of the 13 million members of the AFL-CIO, including 6 million manufacturing workers.
The AFL-CIO demanded for stiff tariffs on Chinese imports and it claimed that the Chinese government through violation of workers’ rights and failure to enforce its labor laws give China an unfair competitive advantage. It stated that the exploitation of the Chinese workers costs hundreds of thousands of U.S. manufacturing jobs and puts a heavy weight on U.S. wages. The petition contended that the difference between the prices of American-made and Chinese-made goods was the result of low wages and the lack of workers’ rights in China. It should be noted that the Petition was not approved
Looking back at the events leading to the China prosper, and if all of the findings were true, it is funny that the US itself had a hand on its decline. It was President George W. Bush who requested to fast-track China’s membership to WTO believing that it would create more jobs for the American people. During his term, former President Bill Clinton saying China being a member of WTO would be a win-win situation also endorsed it.
The most famous analogy for this was that if the United States exports 1,000 products, say, computers, to China, many American workers would be employed in the production. Interchanging, if the US imports 1,000 computers from China then a similar number of Americans who otherwise could have been employed domestically will have to find other work. In short, increase in exports support the domestic employment while increase in imports displaces domestic production.
A study reported by the Nixon Center reported that membership of China to WTO would have encouraged reforms and stability in Asia not to mention it would strengthen the ties of China and United States. Then Deputy Treasury Secretary Eizenstat outlined the many economic benefits of the bilateral trade deal with China. He said that the deal is, “…the most one-sided trade agreement in our favor that has ever been signed with any foreign government.
“To thrive as a WTO member, China will need to become more market based, more respective of personal and commercial goods, and more open to the free flow of information and ideas.” Eizenstat further stressed that the old deal with China regarding trade relations was not enough for the US to access key market concessions. Besides, the WTO membership would have improved the relationship of Taiwan and China, which were both had tensions way back then (May and Sgro, 2000).
China’s entry into the WTO was supposed to provide openings for a sufficiently rapid growth in US exports to reduce the trade deficit with China. While the export growth rate has increased since 2001 (from a very small base), the value of those exports has been swamped by a rapidly rising tide of imports. The WTO is a free-trade and investment agreement that has provided investors with a unique set of guarantees designed to stimulate foreign direct investment and the movement of factories around the world, especially from the US to low-wage locations such as China and Mexico (Groombridge, 2001).
Nicholas Lardy in his economic commentary, “The Economic Rise of China: Threat or Opportunity,” took a different approach. It addressed the view that China’s economic rise is a serious threat to jobs in the United States. He pointed out that, to date, China is responsible only for a very small percentage of manufacturing job losses in the U.S. because many of the manufacturing industries had previously relocated to other Asian countries, namely Hong Kong, Taiwan and Korea. With the availability of an abundant, even cheaper labor pool, China only displaced Hong Kong, Taiwan and Korea to become the major producer and supplier of footwear, toys, games and sporting goods.
A similar transformation occurred with the production of information technology related items, such as computers, laptops, monitors, PC servers, and so on. A large portion of the $300 billion information technology industry is produced in Asia. Again, within Asia there has been a migration of production, from Taiwan to China. By 2000, China had surpassed Taiwan to become the world’s third-largest producer of information technology after Japan and the U.S. In 2002, China had displaced Japan to rank number two (Lardy, 2003).
Also, in reaction to criticisms regarding China trade Daniel Griswold, writer for the Free Trade Bulletin, disagreed. He argued that there the role of international investment flows had been ignored. He claimed that the billions of dollars that Americans spend on imports (over and above exports) quickly returns to the country in the form of investments made in U.S. assets such as stocks, bank deposits, commercial and Treasury bonds or as direct investment in factories and real estate. He further claimed that jobs are created as the incoming flow of foreign investments is used to purchase new machinery, fund research and development, and keep interest rates low. (Griswold, 2)
In addition, Griswold believed that the central assumption of the EPI model – “that rising imports directly displace domestic output – collides with the empirical reality. He said that imports and domestic output rise together in response to demand. He cited figures from the Federal Reserve Board, the U.S. Department of Commerce Bureau of Economic Analysis, and Ibid.
He showed that between 1994 and 2000 when trade deficit was a burden to U.S. economy employment actually rose by a net 12 % and the unemployment rate fell from 6.1% to 4.0 %. During the same time, the U.S. manufacturing output rose by 40 % though the volume of imported manufactured goods doubled. Griswold stresses that trade and prosperity go hand-in-hand and efforts to cut imports of manufactured goods will seriously undermine the ability of the U.S. economy to expand output and create jobs (Griswold, 2).
In the issue of revaluing yuan, to affected American people especially the blue-collar workers. Some would say that China is just moving towards progress and some are thankful that it is embracing capitalism, but should part of the American people suffer? Alarmed and bothered by the voting majority, the Bush administration has joined the clamor for the Asian country to consider changes to its trade policies including revaluing Yuan (The Boston Globe).
In February last year, Senator Lindsey Graham, a South Caroline Republican sponsored a bill that will force China to abide by international trade agreements and stop the alleged manipulation of the value of Yuan. Senate hearings revealed that yuan is undervalued against the dollar and maintained at “narrow band” weakening the dollar. The “artificial low value” of Chinese currency subsidizes their exports and serves as unwritten tariff to foreign products. Expectedly, the Chinese government denied the manipulation accusations and stated that sanctions are not the answers to trade problems (AFX News Limited)
But this is not a “manipulation” of its exchange rate so much as it is a contracting out of its monetary system to the U.S. Federal Reserve Board. That strategy has allowed China to remove the uncertainty of exchange-rate fluctuations from investment decisions and allowed China to grow rapidly while controlling inflation The Chinese have thus avoided the bane of most developing nations of inept monetary controls leading to price fluctuations and periods of hyperinflation.
China was one of the few Asian nations that did not face crippling currency devaluation during the monetary crisis of the late 1990s. Nor is it clear that a yuan revaluation of even 10% to 30% would have any meaningful impact on the U.S. trade deficit. China imports some $100 billion a year of raw materials. A stronger yuan would lower the price of those inputs, and thus of production costs, which could largely offset the impact of the stronger currency on export prices (McKinsey Quarterly).
Surprisingly China revalued its currency. For years, China has been gracefully ignoring urges to revalue their money as such an action would raise the price of their products in the international trade markets. Also, China learned from history when Hong Kong dollars changed its rate and consequently sank. Furthermore, revaluing yuan could have had cut foreign investments, country growth rate, increase bad loans and unemployment and generally destabilize not just their economy but that of their neighboring ASEAN countries as well (Hanke, 2005).
Now, why did China changed its stance? With the international pressure and possible tax sanctions from the United States, Chinese leadership braved to revalue as it realized that they would soon profit from such changes (McClenahen, 2005). As they printed more of their money to buy dollars, they knew that they could avoid possible inflation if they would raise their currency. In addition, they shifted or shared the growth of exports to domestic economy as they know the dangers of relying to foreign money.
The main reason there was a clamor for the revaluation of yuan was for the dollar to regain its dominance. Unfortunately, even with the changes made to the Chinese currency, it will have a very little effect to the dollar as there are no direct link between the yuan exchange rate and the US trade deficits as only 10% of US imports come from China. Worse, the revaluation would actually reduce the trade value of dollar by 2%. Revaluation of will never be enough as there should also be an increase in purchases of dollars (Dorn, 2006).
An article, published in Business Week, said that the fate of U.S. workers depends mainly on domestic conditions not the trade relations. The article referred to a Brookings Institution study, which maintained that trade accounts for only about 12% of the manufacturing job losses since 2000. According from the article, the rising trade deficit is due to high U.S. savings rate and not to the imports from China.
Tyson, the author of the article added that the U.S. current deficit hit the ceiling because of a sharp drop in personal savings and out-of-control federal spending. To back this up, Tyson further referred to a study by economist Ronald I. McKinnon of Stanford University. He cited that if the current account were balanced in 2003 there would have been additional 4.7 million U.S. manufacturing jobs. Tyson concluded that the lost jobs were due to America’s “macroeconomic choices” and not from China’s so-called “unfair trade and currency policies” (Tyson, 2005).
In addition, a McKinsey Quarterly report published in Forbes.com titled “Don’t Blame Trade for US Job Losses” claimed that trade and rising imports of goods and services did not really destroy the vast majority of the jobs lost in the United States. It was said that there was only about 314,000 jobs lost as a result of trade and that falling exports not rising imports were responsible. The figure was a very small percentage of the millions of positions that are annually lost and created in the United States. It pointed out that job losses were due to weak domestic demand, rapid productivity growth and the dollar’s strength, which all dampened the U.S. exports. The document provided a number of different reasons why jobs were in fact lost.
One was the rapid growth of productivity. If the output per employee is rising, product output must also increase to maintain the employment. After year 2000, the US domestic demand grew less than the productivity so companies needed fewer workers to fill their domestic orders thus the laying-off and closure of many companies. Similarly, export figures fell sharply in 2001 and had continued to decline ever since. The report also suggested that the US is perhaps competing in the “wrong” markets. Exports to Brazil, Canada and Europe were “soft” yet trade with China and Mexico was positive. The report claimed that the appreciation of the dollar accounts for the weakness of US exports and hence for the number of manufacturing jobs lost.
A large group believes that the loss of manufacturing jobs in the U.S. is a natural process wherein it is shifting from an industrial age into a service era. One supporter of this idea is Robert Reich, former Labor secretary. In a Wall Street Journal article, “Nice Work if you can get It,” he offered that employment in the manufacturing industry had been dropping all over the world for years and not just in the U.S. He cited studies by Alliance Capital Management revealing that between 1995 and 2002, 22 million factory jobs had been lost worldwide. “The U.S. wasn’t even the biggest loser. Japan and China both had higher losses, Japan 16% and China 15%, compared to 11% for the U.S.,” added Reich.
According to him, technological advances, computerization and automation have increased productivity thus reducing the need for manual labor. Reich claimed that the U.S. is transitioning from an industrial to a service economy imitating the shift from agriculture to industry at the turn of the twentieth century. He believed that this is natural and that once the U.S. economy gets back on the track old jobs will be replaced by new ones. Those new jobs will fall under two categories: symbolic-analytic work and personal-services work. Examples of those belonging to the first type are lawyers, bankers, doctors, and management consultants. For the second sector, they will be restaurant workers, retail workers, and security guards (Reich, 1, 2).
Carlos Gutierrez, Commerce Secretary, in a New York Times article, agreed with Reich. He contended that the United Sates and China are in different states of development and he said that they do not compete head-on. China’s economic foundation lies the manufacture of commodity-type products, whereas U.S.’ are in higher-value manufacturing, differentiation of products, higher technology and new services (Lague, 2).
Christopher Meyer, the former director f the Center for Business Innovation, stated that the loss of manufacturing jobs is just another chapter of technological progress in America. According to Meyer, a country moves forward by replacing low-level jobs with more sophisticated ones. “That’s how economic growth happens—the new jobs have to have higher value-added, higher productivity. It is as when automation replaced blue-collar jobs—we look at most of the jobs it displaced as brutish and short: mining coal, or having your internal organs cooked by the infrared radiation from a ladle of steel. These adjustments will allow more people to do what they want to do, not what they have to do” (Budman, 2).
However, Shenkar argued with this position. He pointed out that the evolution of the United States from agricultural to industrial economy was due largely to the improvements in machinery and fertilizers. It never altered the country’s production capacity.
He added that those displaced in the old agriculture sector shifted to factory jobs the reason why U.S. employment figures were not significantly affected and he wondered if the incoming service sector could do the same. Would people be able to shift jobs easily and have the same opportunities? Would the expected transition maintain if not improve the country’s economic figures? Luxembourg, Hong Kong and Hawaii are service economies, but they are small, somewhat protected havens. Shenkar was not sure if the United States will survive as a service economy, however he admits that this is “terra incognita” (Shenkar, 164).
In addition to emphasizing the colossal size of the Chinese workplace, as described above, Fishman and Shenkar also talked about the growing number of third level graduates, especially in science and engineering. A recent article published in the New York Times expounded it. The article discussed a new study recently done by the National Academies, the nation’s leading advisory groups on science and technology. The study surveyed over 200 multinational companies on their research decisions. The results showed that 38% of those 200 companies planned to change the worldwide distribution of their research and development work over the next few years.
The report cited senior executives from leading multinational companies such as Dow Chemical, IBM and Hewlett-Packard and the common sentiment could be summed up with the statement, “we go with the flow, to find the best minds we can anywhere in the world,” a quote from Nicholas M. Donofrio, Executive Vice President for technology and innovation at IBM. The article strengthened Fishman’s predictions when it reported that American executives are concerned about the “incipient erosion of scientific prowess in this country, pointing out the lagging math and science proficiency … and the reluctance of some college graduates to pursue careers in science and engineering” (Lohr).
One time, The Economist published an article displaying the current Chinese “obsession” with English. “Up to a fifth of the population is learning the language,” Gordon Brown, the British finance minister shared. He observed that in two decades China’s English speakers would outnumber native English speakers in the rest of the world (Economist Article, 2006).
Fish, author of “China, Inc.” referred to the Chinese population as the “super sized workforce.” When discussing the Chinese population he included “China’s uncounted multitude” stating that the Chinese population is closer to 1.5 billion rather than the official census count of 1.3 billion. He pointed out that the “uncounted multitude” was approximately 200 million, a country in itself and would be the fifth largest in the world.
Fish also pointed out that for twenty-five cents an hour, the Chinese workers are not the cheapest in the world but rather they belong in a “world’s workshop” because China is a stable part of the globe and it offers a vast workforce of “reliable, docile, and capable workers who have been groomed by the government-enforced discipline”. Since the government has relaxed its policy on the movement of the Chinese people, hundreds of millions of Chinese peasants have been leaving the countryside moving to urban economic centers in search of better paying jobs providing industries with a bottomless pool of low-skilled workers for many years to come (Fish, 7).
However, more recent newspaper articles are claiming that China is already experiencing labor shortages. Once such article printed in the New York Times in April, reported that labor shortages are pushing up wages making Chinese-made products less of a bargain. It reported that international manufactures are already talking about moving their factories to lower-cost countries like Vietnam. The article quoted Hong Liang, an economist for Goldman Sachs saying, “…We’re seeing an end to the golden period of extremely low-cost labor in China.” The article offered a couple of explanations for the labor shortages.
It said that one was the changing government policies. In an effort to improve rural communities in China, the government scrapped the agricultural tax and it encouraged investments in local economies especially in the poorer, inland provinces. The resulting economies created jobs providing alternative options instead of migrating to far places for job opportunities. Another reason was said to be the China’s one-child policy. Many of this generation are now emerging into the workforce with post secondary education.
Opportunities exist are laid out for them which were not provided for their parents. Chen Guanghan, a professor at Zhongshan University in Hong Kong explained that the new generation is different. He said, “they are reluctant to take factory jobs that are harsh and pay very little.” Barboza offered a third reason for the labor shortages. He stated that workers are more concerned about factory conditions, knows a good deal from a bad one transfer from one job to another (Barboza, 2006).
Interestingly, with all the heated arguments regarding China’s rising economy, Daniel Griswold, writer for CATO Institute advised the government and economic people to forget the deficits and go for growth. Trade deficits are actually reflections of the flow of capital across international borders so trade policies in reality do little to affect a nation’s trade deficit.
The US Department of Commerce made a study briefly outlining the nature of the deficit. The study claimed that 90% of imports from China do not actually replace the American manufacturing goods. Instead, they serve as substitutes for imports, which should have been provided by other countries. It also supported other studies stressing that China is not really the culprit as the US also trade with other countries. It just so happened that previous export processing plants and businesses were transferred from other Southeast countries to mainland China.
On the other hand, China is unfair to US in the sense that it does not give the same access to its market. It imposes high tariffs to US goods so in the end Chinese products are brought at lower prices while US merchandise are sold at higher prices. Normally, cost-conscious consumer will buy cheap items. An American will prefer the cheaper MP3 made in China than the domestic produce contrary to the Chinese choosing between the cheap domestic-manufactured gadgets over the US imported one, which due to the high taxes are not that budget-friendly.
But some thinkers believe that deficits are not disastrous for a country. Instead, they are said to be sign of good times. One example cited was the tripling of US trade deficit in the early 90’s where industrial production actually increased by 24%. In addition, deficits do not cause job losses. They are evidence of rising employment. These are according to the Trade Deficit Review Commission.
In reality, there are really no great harmful effects of the rising Chinese economy to the US trade values, even if there are, those effects are normal and it just so happened that they are dealing with China. The same thing happened during the initial boom of the off-shoring business. Also, there had been similar instances like that of during the 1980’s and early 90’s when the US government pressured Japan for the same reason (The Economist).
The original proponent of the Anti-China campaign was started by the textile industry. The truth is that American consumers benefited greatly from the influx of China cloth It actually hurts the American consumers. Protecting the textile industry have high cost shouldered by the low-income earners who are the largest proportion of clothing buyers (Dan Ikenson, 2003).
Also, it is wise to note that the domestic recession of 2001 and not the Chinese ascent is the main culprit for the losses (Tyson, 2005). As the United States experienced huge growth in the early year, reaching peak normally causes the expected decline. Whatever goes up will eventually go down. The problem began when America failed to maintain its lead.
Also, as the United States suffered job losses China suffered as well. A 2003 study of Alliance Capital Management proved that data to show that as employment in the US dropped by 11% from 1995 through 2002, employment in China dropped even further by 15% or a net job loss of 15 million. It was a large figure compared to the 1.5 million alleged job losses. It seems that Americans are just worrying too much. As Daniel Ikenson put it, “..all there is are surplus in politics and deficit in leadership.”
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