The unemployment race

As many as 2.6 million manufacturing jobs have evaporated in the US since the tech bubble burst in 2000 and in the same period China has continued its meteoric rise as the nation that manufactures almost everything.

While American workers cost about US$14 an hour to employ, the equivalent Chinese wage is less than a dollar, and while China's overall trade surplus is now shrinking, its surplus with the US is still expected to exceed US$120 billion for 2003. It appears the job scales have tipped in favor of China to the detriment of the US, which is a useful US political assumption. But that assumption is, at the very least, highly arguable.

For a start, China is losing far more jobs than the US has manufacturing workers. Official unemployment figures in China, as with many statistics, are not known for their accuracy (see 'Unemployment in China' graph, P16), but they at least give a sense of the scale of the country's staggering job losses. Between 1995 and 2001 the official number of workers employed in China's state-owned sector fell by 46 million or 40% as the country transformed itself from a communist economy to one based on 'socialism with Chinese characteristics' (read: capitalist). In 2003 the government set the minimum target necessary to avoid widespread social unrest at eight million new jobs.

As China speeds up the process of privatizing most of its remaining state-owned enterprises (SOEs), the jobless rate can only climb in the short term (see P14, ). It is a recognized phenomenon that manufacturing jobs are disappearing the world over as competition forces companies to downsize and rationalize and automated processes continue to displace humans.

Quite apart from the schoolyard argument over who is losing more jobs than who, the fact is that many of the jobs supposedly moving to China actually left America a long time ago.

In late November the US imposed trade protection measures to limit imports of brassieres, dressing gowns and knitted fabrics from China. While the US textile industry has lost more than 300,000 jobs in the last three years, the majority of the bras, dressing gowns and knits on American shelves were already made in traditional low-cost manufacturing countries in Latin America and other parts of Asia.

US trade protectionist moves did not end with curbs on undergarments. During November and December, the US imposed high-profile sanctions on Chinese pipe fittings and Chinese TVs. In addition, the United States International Trade Commission (ITC) held a hearing on an anti-dumping case that may lead to tariffs on American imports of bedroom furniture made in China. This was the seventh time the US had accused China of dumping in 2003 and by mid-December there were a further 10 cases already lodged with the US Commerce Department.

So far China has responded to American attacks with some deft diplomatic tai chi. Prior to his December 9 visit to the US, Chinese Premier Wen Jiabao said that China was "shocked and wounded" by the "unilateral" trade moves. He called for the two sides to set up a system for regular discussions to avoid similar problems in future.

There is a strong sense of irony surrounding the role reversal that seems to have taken place as the avowedly free-trade Bush administration imposes trade restrictions on nominally communist China, which in turn calls for more global cooperation to solve shared problems on a pragmatic basis.

China also pointed out that a significant proportion of the manufacturers that have set up in China are US companies and that American retailers and consumers are major beneficiaries of the flood of low-cost goods from the mainland.

Imposing tariffs on Chinese goods was "like charging extra tax on US citizens", said Morgan Stanley's chief economist Stephen Roach during an interview with CCTV. It also causes direct harm to US retailers who are already heavily reliant on China's cheap goods and employ a significant number of low-skilled US workers themselves.

In considering whether to impose tariffs on furniture imports from China, the ITC was faced by the principal dilemma confronting the US – on one side of the hearing were 27 US bedroom furniture makers that operate 50 domestic factories, and on the other side were some of the largest furniture makers in the country who are heavily reliant on sourcing from China. The latter vowed to source goods from other countries such as Vietnam if tariffs were imposed on China imports, illustrating the futile and typically political nature of such actions.

With this year's presidential elections clearly in mind, US President George W. Bush has placed pressure on China to revalue its currency, presumably to appease America's jobless. Few economists believe that such a revaluation will have any significant impact on US jobs, not even the president's own advisors.

Research from the Bush administration's Council of Economic Advisers (CEA) negates the notion that China is a problem for the US and trade sanctions are the way to fix it. The CEA found "no significant relationship between changes in employment and the growth in imports from China," that "increased trade with China is not a major determinant of the US trade deficit," and "restrictions on Chinese imports are unlikely to increase US jobs."

But jobless workers in key election states are not to be ignored, regardless of the realities. Next on the list of targets for possible trade sanctions: Chinese socks.