by Tula Connell, May 3, 2007

The U.S. trade deficit with China has soared since the Bush administration took office—the nation ran a $233 billion trade deficit with China last year, and this year’s first-quarter $46.4 billion deficit is twice as large as in the same period last year. Now comes word about the human cost of this trade deficit.

The U.S. trade deficit with China between 1997 and 2006 has displaced production that could have supported 2,166,000 U.S. jobs, according to a report released this week by the Economic Policy Institute (EPI). Most of these jobs (1.8 million) have been lost since China entered the World Trade Organization (WTO) in 2001. Contrary to the predictions of its supporters, China’s entry into the WTO has failed to reduce its trade surplus with the United States or increase overall U.S. employment, according to the report, Costly Trade with China. Specifically,

[b]etween 1997 and 2001, growing trade deficits displaced an average of 101,000 jobs per year, or slightly more than the total employment in Manchester, New Hampshire. Since China entered the WTO in 2001, job losses increased to an average of 441,000 per year—more than the total employment in greater Dayton, Ohio. Between 2001 and 2006, jobs were displaced in every state and the District of Columbia. Nearly three-quarters of the jobs displaced were in manufacturing industries. Simply put, the promised benefits of trade liberalization with China have been unfulfilled.

But you wouldn’t know anything is wrong if you listened to the Bush administration (do we ever?). Just today, USA Today reports Treasury Secretary Henry Paulson insisted that a Bush administration initiative he heads is spurring China to quicken its economic reforms. Says Paulson:

We’ve made a lot of progress.

Really.

Paulson has traveled to China multiple times since he became Treasury Secretary last year, but so far, all his nice talk with Chinese officials has failed to convince China to lower its trade barriers and bring its laws and regulations into compliance with international standards.

As economist Thomas Palley notes:

In retrospect, the 2000 U.S. decision to permanently open its markets to China seems poorly conceived. That decision was driven by manic optimism about globalization that pushed a biased benefit—cost calculus that ignored economic and political reality.

Opponents claim that the trade deficit stems from lack of U.S. saving, not exchange rates. This argument misunderstands market economics. Reducing the trade deficit requires increasing exports and decreasing imports. That requires inducing foreigners to buy more U.S. made goods, and inducing Americans to “switch” their spending from imports to domestic made goods. Market economies accomplish this through changed relative prices. That calls for exchange rate adjustment that makes foreign goods more expensive for U.S. consumers and U.S. goods cheaper for foreign consumers.

Under an amusingly optimistic headline in its weekly newsletter—”Strong Trade Growth in 2006″—the National Council for Advanced Manufacturing (NACFAM) highlights how in 2006, the U.S. recorded its best annual merchandise export growth in more than a decade, but its trade deficit continued to grow. But even here, reality can’t be ignored. NACFAM goes on to note:

China’s trade growth continued to outstrip other major traders with merchandise exports growing by 27 percent. In the second half of 2006, China’s merchandise exports started to exceed those of the United States.

This week, economic and trade honchos like Federal Reserve Chairman Ben Bernanke and Harold McGraw, head of McGraw-Hill Cos. and chairman of the Business Roundtable, are meeting in Butte, Mont., for the International Economic Summit. Covering the summit, political writer and journalist David Sirota notes how easily these business-backed participants are selling out America’s middle class.

Every major speaker, save Sen. Jon Tester and [Montana] Gov. Brian Schweitzer, are attacking as “isolationists” those who want our trade policies reformed and are demanding Congress continue passing lobbyist-written trade policies that crush ordinary Americans. It is as if these speakers have come here specifically to pressure Sen. Max Baucus, chairman of the Senate Finance Committee, to keep listening to K Street when it comes to trade policy. The message discipline is impressive—but the message itself is incredibly scary for its brazenness. These people are coming to Butte—a town that…has the physical scars of corporate-tilted policies—and demanding that Congress continue its war on the middle class.

Corporations have been steering the course for this administration. In addition to winning trade deals that fail America’s workers, Big Business interests are investing outside our nation. In the American Prospect, former Labor Secretary Robert Reich describes how America’s largest corporations have “decoupled from the United States.”

Their overseas subsidiaries are booming even as their American operations stagnate. General Electric expects more than half its revenue this year to come from outside the United States for the first time. More than half of Boeing’s new orders are from overseas. Ford is struggling in America but doing well in Europe.

In other words, the president’s supply-side tax cuts are great for America’s global investors, who have been investing their extra money around the world—either in foreign companies or in global American-based ones.

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