USCBC report: US-China trade benefits ignored

By CHEN WEIHUA in Washington | | Updated: 2017-01-11 01:52

The rhetoric about the negative impact of China on US economy heard during the US presidential campaign is both misleading and exaggerated, according to a report released on Tuesday by the US-China Business Council.

The report shows that while US-China trade has often been described by politicians as "bad," the trade relationship actually supports some 2.6 million jobs in the United States across a range of industries, including jobs that Chinese companies have created in the US.

As the Chinese middle class continues its rapid expansion over the next decade, likely exceeding the entire US population by 2026, US companies face significant opportunities to tap into a new and lucrative customer base that can further boost employment and economic growth, according to the report, titled Understanding the US-China Trade Relationship.

The report, commissioned by USCBC to the Oxford Economics, an independent research and advisory firm, shows that nations trading closely with China outperform nations with less integrated trade ties and the trend will continue.

The USCBC, founded in 1973, is a private, nonpartisan, nonprofit organization of more than 200 American companies that do business with China.

John Frisbie, president of USCBC, said the impact of China on the US economy has been widely discussed in the past election cycle, but a balanced assessment of the impact of China on the US economy has largely been missing.

"Much was said about the negative impact of trade with China, with estimated job loss receiving considerable attention. But the positive effects of the commercial relationship with China were largely ignored, and therefore there really hasn’t been an overall context of assessment provided," he told a conference call on Tuesday.

Both President-elect Donald Trump and Democratic nominee Hillary Clinton blamed China for US job losses and other economic woes during their campaigns.

Frisbie warned that presenting only the negative impact and ignoring jobs created and lower inflation and other benefits of trade with China can lead to policies based on incomplete or misleading information.

The report finds that China purchased $165 billion in goods and services from the US in 2015, representing 7.3 percent of all US exports and about 1 percent of total US economic output.

Although some US manufacturing jobs have been lost because of the trade deficit, US firms sell high-value products to China, including cars and trucks, construction equipment, and semiconductors, which support jobs.

According to the report, US firms also export business and financial services, totaling $6.7 billion in 2014 and $7.1 billion in 2015. By 2030, US exports to China is expected to rise to more than $520 billion.

The report also shows that the US trade deficit with China, mentioned by Trump repeatedly, is misleading.

It says that as China has become an integral part of the global manufacturing supply chain, much of its exports are comprised of foreign-produced components delivered for final assembly in China. If the value of these imported components is subtracted from China’s exports, the US trade deficit with China is reduced by half, to about 1 percent of GDP -- about the same as the US trade deficit with the European Union.

China has now grown to become the third largest destination for US goods and services, compared with being the 11th largest market in 2000, according to the report.

US exports to China directly and indirectly supported 1.8 million new jobs and $165 billion in GDP in 2015. When the economic benefits generated from US investment in China and Chinese investment in the US are combined, the total amounts to 2.6 million US jobs and about $216 billion of GDP, the report says.

The report shows that China is a leading purchaser of US agricultural products. In 2015, China purchased an estimated $15 billion in agricultural goods.

It says that Chinese manufacturing lowered prices in the US for consumer goods, dampening inflation and putting more money in American wallets. At an aggregate level, US consumer prices are 1 percent to 1.5 percent lower because of cheaper Chinese imports. The typical US household earned about $56,500 in 2015; trade with China therefore saved these families up to $850 that year.

Michael Zielenziger, managing editor of Oxford Economics, expressed doubt that low-end manufacturing will help bring US prosperity, saying that even robots are even increasingly used in China.

He emphasized that China has contributed more to global growth over the last 15 years than euro zone and US combined. And China alone contributed a third of global GDP growth in 2015.

Despite the US recession in 2008, it still experienced stronger growth than most other developed countries since 2000, a compound annual growth rate of 1.8 percent. "And a great deal of this growth is because of US trade with China," Zielenziger said.

Frisbie did not want to comment on why the positive messages about US-China economic relationship have been lacking even from US government leaders.

He noted that it is a relationship that is important for the US to get it right, adding that there are a lot of challenges presented by China, questions about China’s policy directions and the sagging confidence of US business community.

"So as Chinese economy transitions, it serves an opportunity for significant economic benefits for the United States provided China moves forward with reforms and openings," Frisbie said.

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