Bullying China on trade won't bring back U.S. jobs

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Now we all know that no tariff in American history has ever worked — indeed Smoot-Hawley actually exacerbated the Depression. And, the last time we tried that kind of trade negotiation with China the Boxer Rebellion broke out. So, assuming the governor was just dishing out some political red meat, what is the reality of the Chinese-American trading relationship?

China currently plays the role of straw man. Manufacturers and politicians call for import duties and quotas and demand currency revaluation. If not for China and its undervalued currency, subsidized manufacturing and miniscule wage rates, so the logic goes, American manufacturing would still be enjoying the salad days of the 1950s (which is another myth) when Detroit steel and Bible Belt textiles ruled the world.

Unfortunately, as John Adams noted, facts are stubborn things. The first fact is that Chinese currency is neither egregiously undervalued nor responsible for the growing trade deficit. According to the Institute for International Economics, China's currency is undervalued by about 15 to 25 percent, not the 35 percent or more that many claim. Goldman Sachs figures it closer to 10 percent. This causes more damage to China's economy than America's.

While China runs a trade surplus with America, it is in deficit with the rest of the world. It needs a currency revaluation for its own health, not ours.

Moreover, true currency equilibrium with China won't solve our problem. Morgan Stanley analysts note that even if China moved its currency upward by 10 or 20 percent, its exports would decline little if at all. That's because China only adds about 30 cents of value to every dollar it exports, the other 70 cents having come into China preassembled. So, if China adjusted its currency upward by 20 percent, the price of exports to America would rise only about 4 percent, hardly enough to slacken demand.

The second fact is that our trade deficit with China simply reflects a voracious American appetite for imports. According to BusinessWeek, the largest rise in the U.S. trade deficit since 1998 comes from Europe, not China. In fact, the U.S. Department of Commerce reports that last year Chinese imports represented only 10.7 percent of the total coming into America. Americans love to buy from everyone, not just the Chinese.

The third fact is that Americans will revolt if they can't buy Chinese products. Since 1997, American consumers have saved about $100 billion per year just because imports have come from China instead of other countries. And the major purveyor of those Chinese-made products is the shoppers' utopia, Wal-Mart. That store, with the red, white, and blue bunting and "Made-in-America" marketing campaign, has doubled its Chinese-made stock over the last five years and by itself accounts for 10 percent of all Chinese exports.

I wonder if anyone in Travelers Rest sees the irony in the fact that their Wal-Mart will sit across the street from the old Emb Tex.

The final fact is that China exports more than T-shirts to America. Bank of America reports that the most valuable Chinese export to America is dollars. At the current pace, China stands to invest $82 billion dollars in U.S. capital markets this year. Consider the recent presidential request for $87 billion for the war, and then decide if you want to shut off Chinese imports. Moreover, that infusion adds liquidity to the American market that keeps interest rates low and allows people to buy homes and cars and T-shirts at Wal-Mart.

The Chinese told U.S. Secretary of the Treasury John Snow "no" when he went there and asked for currency revaluation, and they are unlikely to knuckle under to the governor of South Carolina when he says "branch out or else." Granted, that's probably not the way he's putting it, but hectoring China on trade will not only get us nowhere in a bilateral economic relationship we should want, it also avoids the real issue of what to do about jobs in South Carolina. As we all know, tariffs are not the answer.

Danny Varat of Greenville holds a doctorate in history, has taught history at several area colleges and writes frequently about South Carolina public policy. He can be reached at dannyvarat@charter.net.