China bashing is at a new level. Policymakers continue to misdirect their concerns over the U.S. economy.
The U.S. Senate is expected to pass a bill placing higher tariffs on goods from China.
The bill will further require the president to present Congress with a list of “misaligned” currencies. Any nation accused of having an undervalued currency for three months or more will face higher tariffs, and the federal government will be prevented from buying any goods from these countries.
This political move is not surprising, given high U.S. unemployment. For decades now, U.S. anger over a decline in U.S. manufacturing employment has been directed toward lower-cost imports from China.
These claims don’t fit the facts.
There are fewer manufacturing workers, but it is not because cheap Chinese goods flood our markets. The decline in U.S. manufacturing employment is because of productivity gains. The prices of goods imported from China are rising.
First, U.S. worker productivity is nearly twice today what it was in the 1980s. This is particularly true in the manufacturing industry, where the United States produces much more than ever.
Output per hour for all workers in U.S. manufacturing has risen 127 percent since 1987. Over the same period, total output from the sector is up 57 percent.
Any industry that can produce so much more with fewer workers is going to have a decline in employment.
Second, the prices of many goods from China have now risen to the point where it is better to produce here. Idaho employment is likely to benefit from this trend.
The Idaho Department of Commerce reports that some new Idaho companies are opening up to produce goods formerly imported from China. Ende Machine and Foundry is a new company in Craigmont making cast-iron castings formerly imported from China by many U.S. firms. The Commerce Department also reported that Buck Knives in Post Falls will shift production from China to its Idaho plant.
The price of goods from China is rising because labor costs have escalated in recent years. Chinese economist Cai Fang of the Chinese Academy of Social Science in Beijing estimates that from 2003 to 2008, manufacturing wages rose 10.5 percent per year. Upward pressure on wages has continued through the financial crisis of the past few years.
These higher wage costs are making their way into products. Economists at the U.S. Federal Reserve Bank of New York found that U.S. import prices for consumer goods shipped from China rose 7 percent over the past year.
Policymakers can’t blame currency manipulation for a high level of imports. While it is true that nations can intervene in the foreign exchange markets to make their exports cheaper, such an approach works only for so long.
Rapid inflation is the price China pays for its longtime policy of fixing the exchange rate between the yuan and U.S. dollar. Pressure on wages and general inflation will continue the upward trend in the prices of Chinese goods.
The Chinese blame game is pointless.
Policymakers should redirect the blame to policies that reduce the incentive to invest and hire in the United States.
PETER CRABB Professor of finance and economics at Northwest Nazarene University in Nampa