Protectionism will not create US jobs
Updated: 2011-10-15 07:27
By Tao Wenzhao (China Daily)
The US Senate passed the Currency Exchange Rate Oversight Reform Act of 2011 on Wednesday, demanding the US government impose punitive tariffs on its main trading partners whose currencies it considers undervalued.
The bill is widely believed by the outside world to be a means of pressuring China to accelerate appreciation of the yuan. The Chinese government has expressed firm opposition to the move, saying it is a kind of protectionism and will compromise the interests of both countries.
It is the logic of some US Senators that China has artificially undervalued its exchange rate, a move that they say is equivalent to subsidizing its exports and giving its products an unfair advantage in the US market. They say China should raise the value of its currency at a faster speed, or receive punitive duties on its exports.
The outlook for the US' economic situation is still pessimistic, with its economic growth on a weak footing, its jobless rate high and still growing, and its fiscal deficit continuing to rocket. In particular, the ongoing fierce bipartisan disputes have added political difficulties to achieving a US economic recovery.
However, revaluation of the yuan will not help the US overcome its trade deficits with China. Since 2006, the yuan has risen by 30 percent in its value, exceeding the 27.5 percent increase originally demanded by some politicians in the US. But even this appreciation of China's currency failed to reverse Beijing's growing trade surplus with Washington.
The Sino-US trade imbalance is a complicated structural issue. To a large extent, the US trade deficit stems from the transfer of its previous trade deficits with other Asian countries to China. As a matter of fact, Beijing's increased trade surplus is almost equivalent to the amount of the US' decreased trade deficit with its other Asian trading partners.
China has reiterated many times in recent years that the main way to resolve the Sino-US trade imbalances is not to reduce its exports to the US, but increase the US' exports to China. However, the US has kept strict limitations on high-tech exports to China unchanged for more than a decade, including the export of satellites, integrated circuits, program-controlled switchboards, advanced machine tools, aerospace and biological technologies. The China Chamber of Commerce in the US has long complained of this policy. The US Obama administration has said it will review these bans but it has so far failed to make any substantial progress on the issue.
Economic globalization has expedited international competition, as well as industrial structural adjustments in the US. Labor-intensive industries have become "sunset industries", and the US is outsourcing its manufacturing to other countries, including China. More than half of China's exports to the US are manufactured by China-based foreign-funded enterprises, including US-funded ones. What China has gained from such a manufacturing chain is only a meager portion of the profits while foreign investors have snatched the lion's share.
But will China's decreased exports to the US, as a result of the imposition of higher tariffs, increase jobs in the US? The answer is clearly no. The decrease in imports of labor-intensive products from China will only mean the US imports them from other countries. If the US does choose to impose tariffs, then the spending of its consumers will increase, its investors in China will suffer declining profits and its domestic inflation will grow.
The prospects for the world economy still remain uncertain. European countries are struggling to remedy the sovereign debt crisis and the US economy is also struggling. Under these circumstances, world members, especially the big countries that have the major responsibilities for global economic growth should continue to cling to the spirit of "being in the same boat", instead of trying to shift their crises to other countries.
That the world economy began a nascent recovery only one year after the global financial crisis can be attributed to the joint efforts by the world's major countries to overcome difficulties and resist trade protectionism. The strong development momentum from emerging economies has also contributed much to the global economic recovery. At a time when the world's economic recovery is still tenuous, any attempt to force China to make concessions on the exchange rate issue will hamper the much-needed cooperation between China and the US and among all world members.
China and the US are highly interdependent in the economic realm. For the sake of the interests of their own and the whole world, the two countries should try to use the established mechanisms to strengthen communication in a candid manner to resolve bilateral disputes.
The author is a senior researcher with the Center for US-China Relations at Tsinghua University.