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Investor's Business Daily, 01/11/05
 
Two new reports underscore China's growing impact on the U.S. Contrary to what many think, that impact doesn't have to be a bad thing.
 
One of the reports, by the left-leaning Economic Policy Institute, asserts the U.S. "lost" nearly 1.5 million jobs between 1989 and 2003 to China.

It also suggests that, because of our booming trade with China and China's membership in the World Trade Organization, America is likely to lose even more jobs.

The other report, from an extensive survey of China's 400 million households, comes from the Gallup organization. It shows that China's workers are getting richer - fast.
 
In 1994, according to Gallup's survey, the average Chinese household had just $720 a year in income - making the Asian giant one of the poorest nations in the world.

This year, the average household will have an estimated $1,776 in income. And in urban areas, it will be much higher.

Back in 1994, Gallup found that 40% of Chinese citizens owned a color TV, 25% owned a refrigerator and just 10% owned a telephone. Today, 82% own color TVs, 63% have regular phones and nearly half own mobile phones. Things have definitely changed.

Put both of these trends together - growing wealth for China, lost jobs from the U.S. - and it seems like a bad thing. After all, the U.S. trade deficit with China hit $125 billion in 2003, and it's still rising. This deficit, some argue, has created a drain on U.S. jobs.

Unfortunately, that logic, while politically appealing, is economically false. Countries don't "lose" from trade, they gain from it - not just in new and better jobs, but also through more and cheaper goods.

If this seems Pollyanna-ish, it's because many of us hold a common misperception: that trade is a zero-sum game in which one side (the exporter) wins and other side (the importer) loses. Whatever China gains, in other words, must somehow be a loss for us.
 
Such thinking is not new.
 
Though dressed in modern economic rhetoric, it's really just a form of mercantilism - the 18th century economic idea that says countries can get rich only by running trade surpluses. Today's mercantilists offer up a twist: Trade deficits, they say, cause job losses. That, too, is wrong - especially with regards to China.
 
A study early last year by Alliance Capital, looking at manufacturing employment around the world, shows why. From 1995 to 2002, it found that the U.S. lost 11% of its manufacturing jobs - about the same as the world average.
 
But China didn't "gain" those jobs. In fact, during the same seven years, China lost 15% of its own factory jobs, more even than the U.S.
 
How can that be? Simple. Jobs aren't "lost" through trade; they're merely reassigned. Low-wage, low-productivity jobs typically go from richer nations to poorer ones. That too is part of trade. And both sides of the deal are better off for it.
 
Even after "losing" millions, the U.S. has more jobs - 140 million at last count - than ever. Those jobs, moreover, pay better, involve less risk and require less physical effort.
 
Meanwhile, low-income workers and elderly on fixed incomes have benefited from the cheap shoes, dresses, handbags and electronic gear that China makes for us at a pittance. This isn't a zero-sum game; it's a win-win situation.
 
And yes, there's a reason behind all this: productivity. U.S. productivity has surged nearly 17% in just the past four years - an unparalleled gain in efficiency for a modern mature economy.
 
That has indeed cost us many low-wage, low-output jobs. It also means that those with little education or training risk falling behind. But that's not a problem; it's an opportunity.

And overall, this productivity miracle has made all Americans wealthier by holding down inflation, boosting company profits and lifting workers wages and standards of living.
 
China presents many real challenges to the U.S. - just as Japan did two decades ago. But rising trade, which makes the world economy grow, isn't one of them.

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