Friday, May 13, 2011

A fantasy view of our economic relationship with China

Note added November 2011.  I had wrongly interpreted some data.  As a result I over-estimated manufacturing employment loss during President Clinton's time in office.  I see now that manufacturing employment, including production, administrative, and sales personnel, was stable or in upswing 1993 to 1996.  However from 1996 to 2000 inclusive, manufacturing employment decreased by approximately 850,000.

Toward the end of the Clinton Administration, the Vice-President met very frequently with Chinese officials, and possibly the President met with them also.

R. B. Reich was Secretary of Labor 1993 to 1997.  At the present time, Mr. Reich has taken a position of defending China and making claims that products from China have only a modest effect on the U.S. economy.

Mrs. Clinton, of course now Secretary of State, has also taken a position of defending China.  Please see the following for a detailed analysis.

In May 2011, I came across a speech made by Secretary of State Clinton on January 14, 2011.

This speech was the "Inaugural Richard C. Holbrooke Lecture on a Broad Vision of U.S.-China Relations in the 21st Century".

Let me say right away that America has two deadly serious problems that no one is addressing and no one is talking about.  Both problems involve China, one partly and one wholly.  If America does not face up to these problems soon, we will be in such bad shape that the Holbrooke Lecture Series will not get very far into the 21st century!

The two problems are:

+  America is sending out one trillion dollars per year to foreign countries and foreign companies.  Any foreign expenditure is much more damaging to the economy than even a wasteful domestic expenditure.   One trillion dollars is wealth we cannot afford to lose.  This is real physical money going out of the country, never to be seen again.  It amounts to over three thousand dollars for each man, woman and child in America.  We are massively impoverished by this huge hemorrhage of money.

+  China has announced a new economic policy with the objective of being completely self-sufficient in all manufactured goods by 2050, and being self-sufficient in industrial components by 2020.   So even the present moderate purchases by China of manufactured goods from America and other western countries will take a major step down by 2020 (readily achievable)  and a further final step down by 2050 (may not actually get down to zero but definitely a further step down).  Part of the 2020 goal is to have reverse-engineered all components now purchased from America, so that China will be making the items for domestic use and for sale on the world market.  American manufacturers involved may suffer major or even complete loss of their business activity.

(I previously said that this new economic policy was announced in early 2011.  I have now learned that this new economic policy was announced in 2006.  More details in a forthcoming post.)

Some people put all blame for all problems on President Obama.  But President Obama has only been in office a little over two years.  What about the eight-year term of President Bush?  What about the eight-year term of President Clinton?  Responsibility for the two problems mentioned above lies with all Presidents and all members of the Senate and House over the last 50 years.  These problems have been a long time developing.

But now let's return to the topic of Secretary Clinton's speech of January 14, 2011.  I say, and I  hope to prove in the analysis that follows, that Secretary Clinton's speech demonstrates a fantasy view of China, arrived at by using rose-colored glasses, blinders, and head-in-the-sand.

I hope President Obama does not share the views of Secretary Clinton.  But of course any President sets the tone for statements and speeches made by Cabinet members.

Some of the more outrageous statements made by Secretary Clinton on January 14, 2011, are presented below, in each case followed by the Ed Farkas rebuttal!  As you look at the statements made by Secretary Clinton, remember that the China she is so enthusiastic about announced over four years ago a new economic policy that is going to be extremely damaging to the U.S. economy.

Secretary C.  "Trade between our two countries used to be measured in the hundreds of millions of dollars.  Today, it surpasses $400 billion annually."

Rebuttal.  Secretary C glories in the number $400 billion but forgets her math!  Normally, one checks whether a number is negative or positive, before drawing a conclusion.  I don't know exactly what is contained in Secretary C's $400 billion figure (see further discussion below) but our NEGATIVE balance of trade with China in manufactured goods is $273 billion annually.  This figure is included in the figure one trillion dollars mentioned above.  Again, the $273 billion figure is real physical money, hemorrhaging out of our economy and our country.  No American can take comfort in this yearly loss of our wealth. 

Secretary C.  "China's transformation, made possible primarily by the hard work of its people...,was also the American power that has long secured stability in the region."

Rebuttal.  China's transformation was made possible through receiving our manufacturing technology on a platter, which otherwise would have taken many decades to develop, and by manufacturing jobs pouring in by the million, without the slightest effort by China.  I estimate that China's current POSITIVE balance of trade with the world in manufactured goods is 1.25 trillion dollars annually.  With this kind of money flowing in, sure a country can be transformed!  And, equally, that kind of money flowing out will wreck a country. 

Consider also that a manufacturing job is a wealth creator, as mentioned innumerable times in this blog.  Every manufacturing job transferred from America to China is a wealth creator America has lost and China has gained.  No wonder most Americans are feeling impoverished today. 

Secretary C is talking nonsense when she claims that China was able to develop because of American military protection.  The fact is that China did  not and does not need our help to maintain "stability in the region".  Something else China is doing with our money is increase and modernize its already very large military establishment.  Why is China increasing its military so aggressively when there is no threat from any direction?   Possibly we should see this situation as a strong threat against ourselves.  Or, maybe the reason is simply that they can't think of any other way to use the huge stream of money coming their way. They certainly don't want to use it to help the ordinary Chinese citizen. 

Secretary C.  "(China) helps drive global prosperity.  The United States has welcomed this growth (in China's economy), and we have benefited from it."

Rebuttal.   Secretary Clinton, you have hit bottom here.   China is not driving global prosperity.  China is driving its own prosperity while severely damaging the economies of western countries.  In the latter respect, China is not completely to blame.  The blame lies with governments of western countries in that these governments don't have the courage and the intellectual honesty to put tariffs on goods coming in from China.  Tariffs are strongly indicated when the economic relationship is highly distorted.  I am purposely not using the word "trade".  It is not trade when the relationship is so distorted.

America imports four times more manufactured goods from China than it exports to China.  That's a distorted economic relationship!

Secretary Clinton, who in America has "welcomed this growth"?   Who in America thinks "we have benefited from it"?

Who is "we"? 

I cannot imagine any ordinary working man or woman of America saying "I welcome the growth of China's economy" or "I have benefited from it".

The ordinary working men and women of America have not welcomed "this growth" because they had to sacrifice their jobs on the altar of the economy of China to provide the growth.
I suspect that the only people who have "welcomed this growth" and "have benefited from it" are yourself and former President Clinton, who with his Vice-President had very close and continuous contact with Chinese officials, especially toward the end of his term.

Our insane process of handing over to China our manufacturing jobs and our manufacturing technology has led to the completely predictable result that China is wealthy and powerful and America is impoverished.  America has a huge budget deficit because we have lost tax revenue by sending jobs to China and other foreign countries.  In case you haven't noticed, workers in China and other foreign countries do not pay U.S. taxes!   Everyone who sent jobs overseas, or passively allowed the sending of jobs overseas, forgot this little point!

Secretary C.  "But despite its progress...China still faces great challenges.  China's GDP is only a third the size of America's...and our trade with the European Union is greater than our trade with China."

Rebuttal.  What the heck is Secretary C trying to say here?  Does she have no concept of negative numbers?  If the temperature is Minus 30 degrees, do we feel warmer if it "increases" to Minus 40 degrees?

As stated above, our NEGATIVE balance of trade with China in manufactured goods is over $270 billion per year.   Does Secretary C want this hemorrhage to get even larger?   As presented above, China has announced a policy of reducing its purchases from other countries.  Therefore, if our trade with China gets larger, it is going to get larger by our imports getting larger and our exports getting smaller.  Therefore our NEGATIVE balance of trade will get larger, meaning even more money permanently lost from our country. 

Just as a matter of interest, let's look at Secretary C's claim that our trade with European Union (EU) is greater than our trade with China.   Here are the figures for 2010, from Bureau of the Census, Foreign Trade Division.

Our exports to EU           $240 billion
Our imports from EU       $319 billion
Balance           Negative balance of trade (rounded)  $79 billion

Our exports to China       $91 billion
Our imports from China  $364 billion
Balance           Negative balance of trade (rounded) $273 billion

Maybe because of her evident inability to understand negative numbers, Secretary Clinton evaluates trade by ADDING exports and imports as magnitudes only, omitting direction of travel!  In this sense our trade with EU is larger. 

However, in terms of health of our economy, professionals in the Bureau of Census, Foreign Trade Division, and in the Congressional Research Service, look at EXPORTS MINUS IMPORTS.   If the result is a larger negative number, then the effect on the economy is more devastating.   In this sense our economic relationship with China is almost 3.5 times more devastating than our economic relationship with EU.   

Secretary C.  "...some here at home see China's growth as a threat that will decline.  We reject those views."

Rebuttal.  Secretary Clinton, how can you look around America and not see that "American decline" has already happened to a very significant degree?   All levels of government are experiencing severe budget deficits.  Fourteen million people who want to work cannot find work. 

Then, Secretary Clinton, what will happen when China reaches its frankly and openly announced 2020 and 2050 goals?   There will be nothing left of our manufacturing sector.  It is as simple as that.

Again I ask who is "We" in your statement "We reject those views"?  I challenge you to carry out a professionally-administered poll with the question "Do you believe that China's growth has led to American decline and there will be further decline?"  I believe that over 90% of respondents would answer a resounding "yes".  If that result were to be obtained, would you say that hundreds of millions of Americans are wrong and you are right?

Secretary C.  "A thriving America is good for China, and a thriving China is good for America."

Rebuttal.  Secretary Clinton, you are batting .500 here!  You are correct in saying that "a thriving America is good for China".   There are very clever people in the Chinese government who would agree with your statement.  But evidently they have been overruled by people who want to destroy the American economy completely.  In simple terms, China has announced a plan to kill the goose that lays the golden egg. 

Your statement "a thriving China is good for America" is completely incorrect.  The evidence that your statement is incorrect is all around you, easily to be seen, if you step out of your office into the streets of America and talk with the ordinary working men and women of America.

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