China has cost US 3.5 million jobs

Does anyone think that ignoring the obvious will make things better? Trade with China, subordinating our interests to theirs, has been a disaster for the US. We never needed anything from China. From stink bugs to stinky drywall the net effect of our trade with China is negative.

The trade deficit financed the Wall Street engineered mortgage disaster and the profligate deficit of the US government. Both groups should be relieved that Robespierre so discredited himself. It is well past time to scrap an economic model that does not work for the US.

If the extraction economies want free trade with China, good for them. Let them trade. We should opt out.

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September 27, 2010
A Trade War With China?
By Robert Samuelson RCP

WASHINGTON-- No one familiar with the Smoot-Hawley tariff of 1930 should relish the prospect of a trade war with China -- but that seems to be where we're headed and is probably where we should be headed. Although the Smoot-Hawley tariff did not cause the Great Depression, it contributed to its severity by provoking widespread retaliation. Confronting China's export subsidies risks a similar tit-for-tat cycle at a time when the global economic recovery is weak. This is a risk, unfortunately, we need to take.

In a decade, China has gone from a huge, poor nation to an economic colossus. Although its per capita income ($6,600 in 2009) is only one-seventh that of the United States ($46,400), the sheer size of its economy gives it a growing global influence. China passed Japan this year as the second-largest national economy. In 2009, it displaced Germany as the biggest exporter and also became the world's largest energy user.

The trouble is that China has never genuinely accepted the basic rules governing the world economy. China follows those rules when they suit its interests and rejects, modifies or ignores them when they don't. Every nation, including the United States, would like to do the same, and most have tried. What's different is that most other countries support the legitimacy of the rules -- often requiring the sacrifice of immediate economic self-interest -- and none is as big as China. Their departures from norms don't threaten the entire system.

China's worst abuse involves its undervalued currency and its promotion of export-led economic growth. The United States isn't the only victim. China's underpricing of exports and overpricing of imports hurt most trading nations, from Brazil to India. From 2006 to 2010, China's share of world exports jumped from 7 percent to 10 percent.

One remedy would be for China to revalue its currency, reducing the competitiveness of its exports. American presidents have urged this for years. The Chinese acknowledge that they need stronger domestic spending but seem willing to let the renminbi (RMB) appreciate only if it doesn't really hurt their exports. Thus, the appreciation of about 20 percent permitted from mid-2005 to mid-2008 was largely offset by higher productivity (aka, more efficiency) that lowered costs. China halted even this when the global economy crashed and has only recently permitted the currency to rise. In practice, the RMB has barely budged.

How much the RMB is undervalued and how many U.S. jobs have been lost are unclear. The Peterson Institute, a research group, says a revaluation of 20 percent would create 300,000 to 700,000 U.S. jobs over two to three years. Economist Robert Scott of the liberal Economic Policy Institute estimates that trade with China has cost 3.5 million jobs. This may be high, because it assumes that imports from China displace U.S. production when many may displace imports from other countries. But all estimates are large, though well short of the recession's total employment decline of 8.4 million.

If China won't revalue, the alternative is retaliation. This might start a trade war, because China might respond in kind, perhaps buying fewer Boeings and more Airbuses and substituting Brazilian soybeans for American. One proposal by Reps. Tim Ryan, D-Ohio, and Tim Murphy, R-Penn., would classify currency manipulation -- which China clearly practices -- as an export subsidy eligible for "countervailing duties" (tariffs offsetting the subsidy). This makes economic sense but might be ruled illegal by the World Trade Organization. A House committee last week approved this approach; the full House could pass it this week. Ideally, congressional action would convince China to negotiate a significant RMB revaluation.

Less ideally and more realistically would be a replay of Smoot-Hawley, just when the wobbly world economy doesn't need a fight between its two largest members. Economic nationalism, once unleashed here and there, might prove hard to control. But there's a big difference between then and now. Smoot-Hawley was blatantly protectionist. Dozens of tariffs increased; many countries retaliated. By contrast, American action today would aim at curbing Chinese protectionism.

The post-World War II trading system was built on the principle of mutual advantage, and that principle -- though often compromised -- has endured. China wants a trading system subordinated to its needs: ample export markets to support the jobs necessary to keep the Communist Party in power; captive sources for oil, foodstuffs and other essential raw materials; and technological superiority. Other countries win or lose depending on how well they serve China's interests.

The collision is between two concepts of the world order. As the old order's main architect and guardian, the United States faces a dreadful choice: resist Chinese ambitions and risk a trade war in which everyone loses; or do nothing and let China remake the trading system. The first would be dangerous; the second, potentially disastrous.

American workers under siege from China?

China has now become the biggest risk to the world economy

Far from taking over as the engine of growth from an exhausted West, China is making matters worse. Its "beggar-thy-neighbour" policies continue to play havoc with global trade and risk tipping the world into a second leg of the Great Recession.

By Ambrose Evans-Pritchard Telegraph

Published: 6:21PM GMT 15 Nov 2009

"The inherent problems of the international economic system have not been fully addressed," said China's president Hu Jintao. Indeed not. China is still exporting overcapacity to the rest of us on a grand scale, with deflationary consequences.

While some fret about liquidity-driven inflation, Justin Lin, World Bank chief economist, said the greater danger is that record levels of idle plant almost everywhere will feed a downward spiral of job cuts and corporate busts. "I'm more worried about deflation," he said.

By holding the yuan to 6.83 to the dollar to boost exports, Beijing is dumping its unemployment abroad – "stealing American jobs", says Nobel laureate Paul Krugman. As long as China does it, other tigers must do it too.
Western capitalists are complicit, of course. They rent cheap workers and cheap plant in Guangdong, then lobby Capitol Hill to prevent Congress doing anything about it. This is labour arbitrage.

At some point, American workers will rebel. US unemployment is already 17.5pc under the broad "U6" gauge followed by Barack Obama. Realty Track said that 332,000 properties were foreclosed in October alone. More Americans have lost their homes this year than during the entire decade of the Great Depression. A backlog of 7m homes is awaiting likely seizure by lenders. If you are not paying attention to this political time-bomb, perhaps you should.

President Obama said before going to China this week that Asia can no longer live by shipping goods to Americans already in debt to their ears. "We have reached one of those rare inflection points in history where we have the opportunity to take a different path," he said. Failure to take that path will "put enormous strains" on America's ties to China. Is that a threat?

It is fashionable to talk of America as the supplicant. That misreads the strategic balance. Washington can bring China to its knees at any time by shutting markets. There is no symmetry here. Any move by Beijing to liquidate its holdings of US Treasuries could be neutralized – in extremis – by capital controls. Well-armed sovereign states can do whatever they want.

If provoked, the US has the economic depth to retreat into near autarky (with NAFTA) and retool its industries behind tariff walls – as Britain did in the 1930s under Imperial Preference. In such circumstances, China would collapse. Mao statues would be toppled by street riots.

Mr Hu sounded conciliatory last week. China is taking "vigorous" steps to cut reliance on exports, still 39pc of GDP. "We want to increase people's ability to spend," he said.

Beijing is indeed boosting pensions and extending health insurance to the countryside so that people feel less need to save, but cultural revolutions take time. All we have seen so far are "baby steps", says Morgan Stanley's Stephen Roach.

The reality is that much of Beijing's $600bn stimulus has been spent building yet more plant and infrastructure so that China can ship yet more goods, or has leaked into property and stocks.

Credit has exploded. Allocated by Maoist bosses for political purposes, it has become absurd. China is rolling as much steel as the next eight producers combined. It is churning more cement than the rest of the world. Fixed investment is up 53pc this year. Once you know that Hunan authorities have torn down two miles of modern flyway so that they can soak up stimulus by building it again, or that the newly-built city of Ordos is sitting empty in Inner Mongolia, you know what must come next.

Pivot Asset Management said lending has touched 140pc of GDP, "well beyond" levels that have led to crises in the past. With the revolution's 60th birthday out of the way, the central bank has begun to tighten. New yuan loans halved in October. So be careful. Pivot said a hard-landing in China could prove as traumatic for world markets as the US sub-prime crash.

The world economy is still skating on thin ice. The West is sated with debt, the East with plant. The crisis has been contained (or masked) by zero rates and a fiscal blast, trashing sovereign balance sheets. But the core problem remains. The Anglo-sphere and Club Med are tightening belts, yet Asia is not adding enough demand to compensate. It is adding supply.

My view is that markets are still in denial about the structural wreckage of the credit bubble. There are two more boils to lance: China's investment bubble; and Europe's banking cover-up. I fear that only then can we clear the rubble and, very slowly, start a fresh cycle.