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Issue 03, 2006 (09 February)
 Feature Article

Report Highlights Positive Impact of US-China Trade

The US-China Business Council (USCBC), a private and non-profit association, issued a report on 25 January concluding that despite the US-China trade imbalance, the long-term benefits to the US of trade with China are substantial. The conclusion is based on a detailed assessment of US-China trade and investment since 2000 and projections to 2010. The study was conducted by Oxford Economics and The Signal Group. Some of the relevant findings are listed below.

Economic health. By 2010, US gross domestic product (GDP) will be 0.7% higher and US prices will be 0.8% lower as a result of trade and investment with China since 2001. Together, these equate to an increase of around US$1,000 in real disposable income per US household annually.

Productivity. Output per worker across the US economy will increase by 0.7% by 2010, much of which is attributable to improvements in manufacturing productivity as a result of increased trade with China. This higher productivity will be the result of two effects: (a) increased competition, which causes the least productive manufacturing firms to close or to increase their productivity to compete with imports from China; and (b) price effects, which allow US firms that source some of their inputs from China, or from other countries competing with China, to benefit from lower costs.

Employment. The recent expansion of trade and investment with China is contributing to a decades-long shift in the structure of US employment away from manufacturing and toward services. The report estimates that while US manufacturing employment by 2010 will have been reduced by 500,000 jobs, this job loss will be offset by an equivalent 500,000 increase in US service sector jobs. While this structural shift displaces some workers in manufacturing sectors and thus represents a real cost to workers in those sectors, the economy as a whole will benefit from the permanent output and price effects of increased trade with China. The overall impact should be a continuing, increasing and positive boost to US output, productivity, employment, and real wages.

Trade deficit. The imbalance with China cannot, by itself, explain the recent deterioration of the overall US trade position. While the bi-lateral imbalance has been rising dramatically in absolute terms, China's share of the overall US current account deficit has remained fairly constant, at around 20%, for more than a decade. The increase in China's share of US imports from 2000 to 2004 was offset by declining shares of other East Asian countries, reflecting a profound shift in production patterns by Asian and other multinational firms operating in the region. The growth in Chinese exports to the US since 2001 is partly the result of an increase in foreign investment in China associated with its WTO entry, rather than any major change in the treatment of those exports under US trade policy.

Chinese Imports. As a result of its booming import demand, China was one of the main locomotives of global economic growth. China's import growth from 2000 to 2004 contributed more than any other country's to global import growth. China's demand thus stimulated export growth among its trading partners, including the US, whose sales to China have constituted the fastest growing segment of its exports in recent years.