Posted on 07/19/2003 11:40:19 AM PDT by Willie Green
For education and discussion only. Not for commercial use.
The crisis in manufacturing that the U.S. Business and Industry Council has been tracking and warning about since the creation of the Trade Alert website has finally reached a point that even those who have planted their heads deeply in the sand have had to take notice. Over 2.5 million American factory jobs have been lost in a little over two years -- more than one in every ten jobs. Every part of the country has been affected. The current economic slowdown pushed the unemployment rate to 6.4 percent last month. It is essentially a manufacturing recession. Factory layoffs accounted for nearly 90 percent of all the job losses since March 2001.
The House Small Business Committee under Chairman Don Manzullo (R-IL) has held a series of hearings on the manufacturing crisis which has focused on its main cause: the worsening international trade balance. Rep. Frank Wolf (R-VA), chairman of the Appropriations Subcommittee on Commerce, State, and the Judiciary held a hearing on "On How Trade with China Affects American Manufacturing," a fitting topic given that the trade deficit with China is the largest the United States has with any country, and the most lop-sided. There is nothing reciprocal in a trade relationship where American producers could only sell $22 billion in exports in 2002, while Chinese producers sent to America $125 billion of imports, a 5-1 advantage for Beijing.
Projections presented to Rep.Wolf's Appropriations Subcommittee by the National Association of Manufacturers indicated that if current trends continue for just another five years, the U.S. trade deficit with China would triple to over $330 billion. The total U.S. trade deficit with the entire world last year was $470 billion. Based on the first half of this year, the 2003 deficit with China will reach $120 billion.
Since 1997, import penetration (the import share of the U.S. market for manufactured goods) has increased. That increase in imports accounted for over 50 percent of the growth in U.S. consumption of manufactured goods over the last five years. In the case of durable goods, imports took about two thirds of the growth in U.S. consumption. No wonder the individual income tax cuts that have been the center of Bush Administration recovery efforts have had so little effect. The money is being spent on imports to create jobs in foreign lands, not America.
1997 was the year of the great global financial crisis that started in Asia, then spread to Russia and Latin America. That crisis threw many major countries into recessions from which they have not recovered. The result has been smaller export markets for American producers and more aggressive efforts by distressed foreign producers to dump their goods into the U.S. market.
China set events into motion when it devalued its currency in 1994, giving it a decided advantage over its trade rivals on the Pacific Rim. Driven to the wall, a wave of devaluations swept through these other states, but in a disruptive rather than a planned fashion. Ernest H. Preeg, of the Manufacturers Alliance and the Hudson Institute, has estimated that the Chinese yuan is as much as 40 percent below market value, if the market were allowed to set its value. But Beijing has intervened on a massive scale to keep the yuan from being valued by the market.
China is able to use the profits from its successful trade policy to maintain its advantage. Its trade surplus gives it the dollar reserves its needs for financial intervention. Between 1997 and March, 2003, its dollar reserves grew from $140 billion to $316 billion. It can invest these funds in U.S. Treasury debt, which is being issued at a brisk pace due to the expanding Federal budget deficit. The budget deficit is largely the result of the American recession, which in turn is perpetuated by the trade deficit with China and elsewhere. Thus the "twin deficits" (trade and budget) work together for Beijing's benefit.
And when China is involved, the dangers are not just commercial. Beijing's strategy to undermine American industry while building up its own manufacturing base also works to shift the balance of power in Asia. So does undermining U.S. finances with the "twin deficits" and beating down neighboring states in trade battles. In the seminal Chinese treatise on modern strategy Unrestricted War by People's Liberation Army Colonels Qiao Liang and Wang Xiangsui published in 1999, the ongoing financial crisis is compared to military conflict: "Economic prosperity that once excited the constant admiration of the Western world changed to a depression, like the leaves of a tree that are blown away in a single night by the autumn wind. After just one round of fighting, the economies of a number of countries had fallen back ten years. What is more, such a defeat on the economic front precipitates a near collapse of the social and political order. The casualties resulting from the constant chaos are no less than those resulting from a regional war."
It is also argued in Unrestricted War that to attack another country's economy, the aggressor "must adjust its own financial strategy, use currency revaluation or devaluation as primary, and combine means such as getting the upper hand in public opinion and changing the rules sufficiently to make financial turbulence and economic crisis appear in the targeted country or area, weakening its overall power, including its military strength." As the weak American economy contributes to rising budget deficits, it becomes more difficult to provide the funds to modernize or expand the overstretched U.S. military, or to pay for overseas combat operations, or to finance national building in places like Iraq and Afghanistan.
Indeed, if economic troubles can bring "a near collapse of the social and political order" would it not be to Beijing's benefit to see the assertive President George W. Bush defeated for reelection in 2004? The senior President Bush was defeated for reelection despite winning the Gulf War because of a recession. His defeat brought into power Democratic President Bill Clinton, who followed an appeasement policy towards China. Beijing's strategists may have more in mind than just the economic gains from trade.
Unfortunately, despite the increased attention being paid in Washington to the impact of trade on American manufacturing, there has yet to be the kind of integration of international economics into U.S. global strategy that one finds in Chinese writings. And until that happens, American officials will continue to be too limited in their proposals to get a firm grip on the problem.
William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.
Should be thrilling to read. Not...
Just imagine what our country would be like if we had a $500 billion dollar trade surplus?!?!?!
The only place where I disagree with the author is the above. It was Bush that approved China for MFN Trade status and his administration's trade policies since day one have been exceedingly beneficial to China (to say the least)...as the numbers so painfully show.
I don't think the PRC leadership would want to risk the great thing they have going with Bush with the uncertainty that another president naturally brings. Even a democrat.
China will bide their time, like they always do, and wait until our country has lost so much of its industry and economic independence that we can no longer effectively counter their global ambitions. To be sure, we are not all that many years away from this.
Now where have we seen this before? Sounds like globalisation is in the Democrats best interest.
Yeah, I have to laugh at some of the things they come up with like increasing unemployment is good cause it is of a sign things will be getting better; or, record levels of consumer debt shows that people have confidence in the future. Yikes. You just can't make this stuff up!
Richard W.
Soon?
Greenspan said this week that we basically don't need manufacturing and if that is now the accepted line of thought, I think that we are in very big trouble.
Richard W.
It is also argued in Unrestricted War that to attack another country's economy, the aggressor "must adjust its own financial strategy, use currency revaluation or devaluation as primary, and combine means such as getting the upper hand in public opinion and changing the rules sufficiently to make financial turbulence and economic crisis appear in the targeted country or area, weakening its overall power, including its military strength." As the weak American economy contributes to rising budget deficits, it becomes more difficult to provide the funds to modernize or expand the overstretched U.S. military, or to pay for overseas combat operations, or to finance national building in places like Iraq and Afghanistan."
The things I hear now out of the mouths of people who allegedly know better are so bizarre that I think I got zapped into an alternate reality where all the polarity's have been reversed!
Weird Science: Life in Post-American America.
I wonder, what is the trade balance of Argentina over the last decade and what Argentina is exporting and importing?
Cacique
Perhaps you can give a detailed answer to this question.
And when China is involved, the dangers are not just commercial. Beijing's strategy to undermine American industry while building up its own manufacturing base also works to shift the balance of power in Asia. So does undermining U.S. finances with the "twin deficits" and beating down neighboring states in trade battles. In the seminal Chinese treatise on modern strategy Unrestricted War by People's Liberation Army Colonels Qiao Liang and Wang Xiangsui published in 1999, the ongoing financial crisis is compared to military conflict: "Economic prosperity that once excited the constant admiration of the Western world changed to a depression, like the leaves of a tree that are blown away in a single night by the autumn wind. After just one round of fighting, the economies of a number of countries had fallen back ten years."
This is precisely their policy and agenda...and ultimately, it will lead to war.
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