US trade deficit puts China on election agenda
IN A CLOSELY-FOUGHT election in the United States, it is inevitable that the yawning trade deficit with China should come into play at some point.
Last week saw the publication of a report that is sure to feed into growing resentment at China’s rise and also put pressure on both President Obama and challenger Mitt Romney to appear tough on the world’s second largest economy.
China’s trade surplus with the US hit a record $295 billion in 2011. The figure has been fuelled by Beijing’s actions to depress the value of its currency.
The surplus displaced or eliminated more than 2.7 million American jobs between 2001 and 2011, according to a think tank called the Economic Policy Institute, which gets a lot of its funding from trade unions.
The institute estimated that 77 per cent, or more than 2.1 million, of the lost jobs were in manufacturing and one of the factors is the relative strength of country’s the currencies.
By some estimates, the yuan is 33 per cent below its real value, although it has risen in recent months, and this undervalued currency subsidises its exports and raises the cost of its imports.
Romney has pledged to formally declare China a currency manipulator on his first day in office, should he win.
The flip side of this investment story is, of course, that Chinese investments are actually supporting thousands of jobs.
Chinese companies are investing in a whole range of industries – in May, the conglomerate Dalian Wanda Group announced it had bought the struggling cinema chain AMC Entertainment Holdings for €2 billion, the biggest Chinese takeover of a US company to date.
The Rhodium Group, which closely tracks Chinese foreign direct investment (FDI) reckons that the US has attracted nearly €17 billion in FDI since 2000, and that trillions could be earmarked for the US in coming years.
The US-China Business Council, a lobby group representing companies doing business in China, said the Economic Policy Institute report was unfair, because it did not allow for the productivity gains that allow US manufacturers to make more goods with fewer people.
“The US is still the world’s leading manufacturer – in fact, we make more than ever, and we make more than anyone else,” the council’s vice-president Erin Ennis said in a statement.