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China is hardly at fault for U.S. manufacturing

BY GUEST OPINION | AUGUST 23, 2011 7:20 AM

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As President Obama’s job creating project, “Advanced Manufacturing Partnership,” sweeps across the U.S., Americans buzz that deeming to the vague concept of free trade is the biggest joke they played on themselves for years by outsourcing job opportunities and insourcing products from a growing economic power that holds artificially undervalued currency. Americans point to this “Tiger Economic Power,” China.

Matt Heinze’s column “Manufacturing a U.S. decline” in the July 28 edition of The Daily Iowan also thrust the Chinese currency onto center stage, where an undervalued renminbi is blamed for the trade deficit with China, a deficit blamed for U.S. job losses.

However, the relationship between currency and the trade deficit, which is supposed to contribute to the high unemployment rate, is actually weaker than Americans presume.

Between July 2005 and July 2008, the renminbi rose 21 percent against the dollar, from $0.1208 to $0.1464. But the trade deficit, according to the trade statistics compiled by the U.S. Census Bureau, increased to $268 billion from $202 billion over that period. Also according to textbook, Americans will reduce their purchases of Chinese products after considering the renminbi’s increasing value against the dollar — but America imports from China between 2005 and 2008 actually increased by $94.3 billion, according to the Census Bureau.

Additionally, forcing China to increase renminbi’s value against the dollar can be translated into the higher prices of Chinese goods in Wal-Mart and Target, two of the biggest retailers in the U.S. The increasing living expenses will shrink American wallets, imposing a higher financial burden upon low-income families.

Another point in “Manufacturing a U.S. decline” criticized oppressive Chinese labor practices. According to a simple economic theory, any value is officially measured by the relation between supply and demand. With nearly 1.4 billion people in China, the supply far exceeds the demand.

This is a key reason there are numerous cheap laborers in China or other Asian countries, and this is why developed countries, like the United States, keep outsourcing low-end job opportunities in Asian market to stuff their purses.

I also would like to correct a wrong concept in this trade-deficit argument. Americans reduce the job losses to import value and pretend that imports cannot create jobs. Impact Analysis said, “U.S. producers — purchasing raw materials, components, and capital equipment — account for more than half of the value of U.S. imports annually, according to the U.S. Bureau of Economic Analysis.”

These imports support many U.S. jobs and industries.

Moreover, the expanding globalized production chains has combined high-end U.S. technologies, manufacturing, and design with low-end labor forces and assembly operations in Asia, including China. In this global market, any production is produced by countless countries. According to a 2007 study by Greg Linden, Kenneth L. Kraemer, and Jason Dedrick of the University of California-Irvine, each Apple iPod costs $150 to produce — but only about $4 of that cost is Chinese value-added. Most of the value comes from components made in other countries, including the U.S. Yet, when those iPods are imported from China, where they are snapped together, the full $150 is counted as an import from China.

Resolving the unemployment problem is more than criticizing how many jobs are outsourced to other countries. Considering how to create jobs is far more important.

Guannan Huang is a master’s student in journalism at the UI.


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