In 2008, the U.S. trade deficit was $677 billion – almost five percent of our gross domestic product. We have been running current account deficits since 1982 (including flows of investment income, as well as trade). Since 1994, we have run up more than $5 trillion in cumulative current account deficits – meaning we will be paying out returns to foreigners on that debt for the foreseeable future.
But one country stands out in the 2008 trade figures. Our bilateral deficit with China hit an all-time high of $266 billion last year. This continues to be the largest single bilateral deficit between any two countries in the history of the world, and it is the most lopsided trade relationship that we have with any of our major trading partners (our imports from China exceed our exports by a factor of almost five to one).
Our deficit with China has been skyrocketing on an upward trajectory for the past two decades, growing by more than $30 billion in the last two years, even as our overall trade deficit has fallen by $76 billion. Last year, our trade deficit with China accounted for more than 60 percent of our total non-oil goods deficit with the entire world.
Even more concerning, the composition of our trade with China has evolved rapidly over the past decade—and not in a good way. Our top 10 imports from China are all manufactured goods, while four of our top 10 exports are waste products: ferrous waste, copper waste, aluminum waste and scrap paper waste. Another two of our top 10 exports are raw agricultural products—soybeans and cotton.
Aircraft, one of our top exports to China, is one of the Chinese government’s targeted industries. In the past year, China began production of a regional jet that will replace current imports and the government has announced it will be building larger classes of international aircraft within a decade. Meanwhile, our trade deficit with China in advanced technology products (ATP) hit $73 billion last year—more than accounting for our ATP deficit with the world. This is certainly not the trade profile that economics textbooks would predict between an industrialized country and an emerging nation.
The burgeoning bilateral deficit is part of a rapidly growing trend that involves investment as well as trade flows. Seventy percent of China’s foreign direct investment (FDI) is in manufacturing, with heavy concentration in export-oriented companies and advanced technology sectors. Contracted (future) FDI projections have more than doubled since 2005, with Japanese and U.S. firms leading the way. Research and development, engineering and design are all part of the investments and jobs China’s government is aggressively pursuing. In 2006, for the first time, China’s inflow of FDI exceeded that into the United States. The Chinese Ministry of Commerce (MOC) reports that China’s FDI for the first five months of 2008 reached $43 billion, an increase of 55 percent over the same period last year. Hao Hongmei, an analyst with the Ministry of Commerce said, "China remained a favorite destination for overseas investment, especially big investors like the top 500 multinationals."
What is wrong with this picture, how did we get to this point and what new policies do we need to reverse this course? This distorted trade and investment relationship is not only damaging to America's workers and producers, but it also is robbing Chinese workers of a decent living standard and their basic human rights.
The imbalanced and unfair U.S.-China trade relationship reflects much of what is wrong with our government’s approach to trade policy to date, with multinational corporate strategy and with the framework of global economic rules.
The Chinese government has put in place an extreme version of an export-oriented growth model—employing numerous tactics, including currency manipulation; systematic repression of workers’ fundamental human rights; illegal export subsidies; lax enforcement of environmental, consumer and workplace protections; and tax measures designed to favor domestic production. The result has been an industrial export juggernaut that has fueled rapid economic growth in China—but has brought with it a high price domestically in environmental destruction, growing inequality, trampled rights, tainted consumer products, rampant corruption and suppressed consumption. Globally, the Chinese government’s unfair competitive tactics have cost jobs in both industrialized and developing countries and have distorted other governments’ regulatory agendas.
American corporations, as well as other multinationals, have benefited from these measures. To the extent that they have shifted production to China for export back to the United States or other industrialized nations, they too are beneficiaries of policies that artificially suppress the prices of Chinese-made goods. Multinational corporations, in alliance with the undemocratic Chinese government, have stymied progressive policy change in both China and the United States, relying on the empty slogan of “free trade” to mask their real agenda—continued political control on the part of the Chinese government and higher profits on the part of the multinationals.
It is time for our government to stand up for America's workers, producers and farmers and insist that the Chinese government play by the rules of the global economic system—and respect its obligations under international human rights, labor and environmental conventions as well.
This is a matter of enormous urgency for America's workers, who are losing too many jobs to corporate offshoring and seeing their wages and benefits beaten down. It is also important for workers around the world, who find themselves competing on the same unfair terms as we do. Most of all, external pressure on the Chinese government to respect its international obligations is essential for Chinese workers, who work long hours for uncertain pay, often in unsafe conditions and without any political voice or the right to form independent unions. The United States also must stand up for Chinese workers in their efforts to fully exercise their fundamental labor rights.
It is also crucial for consumers—here, in China and elsewhere—that Chinese-made products, medicines and foods are safe and free of adulteration. And finally, the Chinese government’s actions with respect to environmental protections, energy use and emissions control will have an enormous impact on the global environment. If short-term profits and growth remain the only goals of both government and business, the problems we see in China today will only get worse.
Competing in the global economy by keeping your currency undervalued, your workers disempowered and your standards unenforced is the worst form of “beggar-thy-neighbor” policy and a true danger to a sustainable global economic recovery.
We call on Congress and the Obama administration to put our two governments’ relationship on a new footing—placing a priority on a fair economic relationship and adherence to international labor, human rights and environmental commitments. Our government should make clear that the current lopsided trade relationship will not continue if action is not taken to address currency manipulation; violation of workers’ rights, including freedom of association; appropriate climate change measures; consumer safety; and unfair trade practices.