Whose Trade Deficit?

I have been busy of late…and will be for a few more weeks. But I thought the following Bloomberg article might be of interest those who persist in claiming that China is not costing us jobs…or should I say, China in partnership with our own multinationals is not costing us jobs.

Here is the key section of the article:

To his meetings with Vice Premier Wu Yi in Washington last week, Paulson brought the now familiar charge that China is unfairly holding down its currency and costing the U.S. jobs. Wu brought something far more potent: an argument poking holes in the contention that U.S. imbalances are China’s fault.
Roughly 85 percent of China’s trade surplus is generated by foreign companies exporting products from China that are no longer made in the U.S., such as shoes. Wu mentioned that inconvenient fact when she said “we should not easily blame the other side for our own domestic problems.”

As I have said repeatedly, the fault is not China’s, but our own corporations seeking profits in exporting from China. China is, of course, one of the many landing fields that our corporations have found in developing countries. Eight-five percent? That is a bit higher than my usual 60% figure, but Yi’s point stands: “Don’t blame China; blame your own corporations!”

I am always surprised that my usual number of 60% is never challenged. (I reserve the 80%+ number for IT exports.) But for those refusing to acknowledge even the range these numbers, I include some citations.

First is Stephen Roach:

There is a final misperception about the oft-feared Chinese exporter. It turns out that China has become an important efficiency solution for many of the world’s multinational corporations. China’s so-called foreign-invested enterprises – basically, Chinese subsidiaries of multinationals – have accounted for more than 60% of the explosive growth of overall Chinese exports over the past decade. That raises serious questions about the real identity of the widely feared, all-powerful Chinese exporter.

Second is Forbes:

About 60% of Chinese manufacturing exports are by companies headquartered outside China.

Or perhaps we should ask Yi Xiaozhun, China’s Vice Commerce Minister when he says:

Foreign-funded enterprises in China enjoyed 83 percent if China’s total foreign trade surplus and accounted for 58 percent of China’s total exports, announced Vice Commerce Minister Yi Xiaozhun at China-US Business Forum in Beijing on Feb. 14, 2006

Some have simplistically accused me of China bashing. Not so. China is not stealing our jobs; nor are any of the other developing countries. Our companies have simply decided to move; they then sell the goods back to us, using a different set of workers. Of course, once an industry has moved completely offshore, who is left to complain? This is truly a marvelous arrangement. Our companies prosper. Our trade deficit increases; but deficits of all kinds are really nothing to worry about…or so we are told.

The answer, we are often told, is for the U.S. to consume less and save more. The problem with this solution is that the Chinese are not ready to consume on that kind of scale. The average Chinese wage simply cannot take up the “buying slack.” We have, I think, a Mexican…should I say, Chinese?…stand-off. If the U.S. starts to save, who does the buying? What happens to all those industrious Chinese working for that export machine? Do they return to the farms? This is part of the problem that may drive the world’s economy off a cliff.

On the other hand, if it is true that multinationals are driving Chinese exports, then we really should not fear China at all. China should be the one that should be worried, worried about foreign nationals gobbling up entire chains of production.

But the Chinese Government has made some money out of all this as its entry into the Blackstone Group attests. Who knows, maybe someday it will buy Intel or Walmart. Or maybe it will simply decide to nationalize some of the foreign industries now in China. Damned if I know how all this will turn out. But that Blackstone deal I find a bit curious.

N.B. Minor typying mistake corrected.