China and the Blame Game

China and the Blame Game

American politicians are quick to point the finger at China, but the roots U.S. economic problems are closer to home.

Politicians are getting ready for the fall election and looking for issues. They are also seeking scapegoats to blame for America’s suffering and malaise. Unemployment, according to most opinion surveys, is the number-one concern of voters. And China, many politicians charge, is the cause. Their mantra has become “Blame China.”

To these politicians, the most relevant issue is China’s undervalued currency, the yuan. They charge that Chinese exports to the United States are too cheap and U.S. exports to China too expensive. The huge trade deficit that results from the undervalued yuan supposedly translates into unemployment in the United States. Is China stealing American jobs?

Most economists agree with the perception that China’s currency is undervalued but suggest it is only by a fairly small amount. Others say that it is not undervalued at all, given that China does not have a trade surplus with most of its trading partners, which means debtor America is not competing very well. Politicians, on the other hand, suggest very high figures for the currency distortion, up to 40 percent. But this exaggerates and distorts the real picture. Most economists contend that a revaluing of the yuan would not have an immediate impact and magically fix the trade deficit.

For one thing, increasing the value of its currency would make China’s imports of energy and raw materials cheaper and cut production costs considerably. But more importantly, most U.S. imports from China are not produced in the United States due to the high cost of labor. If politicians force them to disengage from China, American importers would go to other countries such as India, Indonesia and Vietnam. For U.S. firms heavily invested in China, this would mean losing profits. These companies get a high return on their investments in China: 13.5 percent compared to only 9.7 percent elsewhere.

U.S. politicians raise other charges against China: Its workers are underpaid, factory conditions are bad, foreign companies are discriminated against and markets are closed by nefarious means. But most of these complaints relate to China’s domestic policies, which are not covered by international-trade rules. The United States regards its labor policies as its own business; why shouldn’t China? And China is generally abiding by the rules. It has been a member of the World Trade Organization for ten years and has not been the target of many formal unfair-trade charges. It certainly has more open markets in many respects than India, South Korea, Brazil and other developing markets. A host of other countries follow a similar export strategy, but since they are small, their trade policies are ignored. China is often singled out simply because it is large.

The real solution to reducing the U.S. trade deficit with China is for the United States to create economic growth at home. Washington could end the minimum wage, since globalism means that wages will eventually become equal anyway. Terminating unemployment benefits, reducing the size and cost of government to the level of competitive countries, making the military and the penal system more economically self-sufficient, and encouraging savings over consumption would also go a long way.

Merely stopping America’s economic stagnation does not require all of these domestic-policy changes. Going partway may be enough to return America to acceptable growth—3 or 4 percent of the gross national product annually. But China’s growth is still threefold that. Competing with China for global influence and maintaining U.S. supremacy requires drastic measures, including getting out of debt.

American politicians are loath to make difficult decisions. They find it easier to cast blame on someone else and kick the can down the road. But a “Blame China” approach only guarantees that the United States will continue to give way until the twenty-first century belongs to China.

John F. Copper is the Stanley J. Buckman Professor of International Studies at Rhodes College in Memphis, Tennessee.