A food safety factory shutdown has Americans hunting for baby formula. Readying themselves for a covid-19 lockdown, Chinese in Beijing emptied store shelves. Emerging from lockdown, some in Shanghai are visiting well-provisioned markets. U.S.-China agricultural trade is booming, but many are still being left hungry. Food security, sustainability and safety remain issues.
US-China Economic and Security Review Commission, “MBG Information Services: China’s Soaring Commercial and Financial Power: How it is Affecting the U.S. and the World,” 2008
US trade and economic policies toward China are undermining US economic and military security. They urgently need fundamental reform. China’s successful, fundamentally protectionist policies have changed US-China trade patterns in dramatic and deeply troubling ways since China’s 2001 admission to the WTO. The most productive sectors of US industry have been broadly undermined by record trade losses with China and others, and unprecedented US foreign borrowing and asset sales have undermined US financial independence, accumulating massive future obligations, particularly with China. At the same time, fueled by record global surpluses of production and trade, particularly with the US, China’s modern productive and financial capacities soared, becoming far more diversified and less dependent on the US or on any set of industries. Even as China’s economy grew at record rates, four times faster than the US since 2001, China became the world’s largest exporter of manufactured goods, with record surpluses in virtually all modern manufacturing sectors.
Indicating its surging value-added, the ratio of China’s manufactured exports to imports soared from 1.15 to 1.66 even during this period of double-digit domestic demand growth. China’s global trade surplus for manufactured goods rocketed to a world record $539 billion in 2008 alone and total $1.6 Trillion since 2001.
China also has begun reducing its tiny global payment deficits for intellectual property and professional services even as Chinese tourists and business travelers began roaming the world in search of key assets to buy in the current global downturn. The $2 Trillion war chest of foreign currencies created by China’s trade surpluses and other activities already generates six times as much for China’s politically potent US investments -- currently mostly low-yielding US Treasury bonds -- as all earnings for US-incorporated companies and investors in China. Despite unprecedented increases in US domestic and foreign debt, a record $4.5 Trillion in global current account losses -- $2.9 Trillion in manufacturing alone -- led to the worst record of stagnation for US production and jobs since the 1930s. $1.5 Trillion in current account losses with China alone -- $1.3 Trillion in manufacturing -- costs the US almost two million jobs, with over one million additional job losses just since 2001. Every US manufacturing sector lost a substantial portion of its jobs as did virtually every sector that is exposed to imports from China or offshore outsourcing. US job losses were most severe for producers of motor vehicles and parts, which lost -43% of their jobs since 2001, communications equipment, 47% of jobs lost, and textile mills, which lost 63% of their jobs. Meager US job growth came only in industries with lower productivity and generally lower wages but that face little or no competition from imports or offshoring, particularly health care, education, bars and restaurants, and local government agencies.
The US lost its traditional, global surplus in Advanced Technology Products for the first time in 2002 with losses worsening since then. ATP deficits with China account for more than the total US losses and are also larger than the total global surplus in Intellectual Property royalties and fees of all US-incorporated firms. China has a rapidly increasing dominance with the US for ATP trade in the largest, fastest- growing sectors of electrical and non-electrical equipment, including all information technologies.
Traditional US strengths in aerospace production are now threatened and even semiconductor production -- one of China’s key technology weaknesses -- is now quickly migrating to China. Along with loss of its relative scale, the relative diversity of US ATP production appears to be declining. The number of distinct ATP in which US-based producers enjoy a surplus with China declined from 287 in 2001 to 225 in 2008; the number of Chinese-produced ATP with surpluses increased from 312 in 2001 to 328 in 2008. The broad, once incomparable and dynamic US supply chain of manufactured goods and services is clearly weakening and shifting quickly to China. It is this vital supply chain decline in the US, and the shift to China, rather than concerns about any single product or group of products -- for which substitutes may or may not be readily available -- that is the most urgent challenge to US economic and military security.
China is now, by far, the largest exporter of manufactured goods to the US. However, in 2008 the EU-27 became China’s largest manufacturing export market; developing countries with key natural resources are China’s fastest growing export markets. The EU’s manufacturing trade deficits with China soared since 2001 and now rival the US deficits with China. Japan also has continued to face small manufacturing trade deficits with China. Nonetheless, despite deficits with China, both the EU and Japan have maintained substantial global surplus in manufacturing trade; among the major powers, only the US has manufacturing trade deficit.
Although these also are changing rapidly, China maintains large, politically significant trade and investment deficits with Taiwan and other Asian neighbors. Despite assurances from the US Farm Bureau and others that WTO membership would lead to booming US grain sales to China, except for soybeans, US grain sales to China have virtually vanished while China regularly has a global trade surplus in grain and in most food products where it suppresses third-country US agricultural exports and prices.
China is now deploying its vast new wealth to protect its economy from the current, severe global downturn. It is also carefully and patiently considering ways to take advantage of distressed prices for global oil and gas reserves, critical iron and copper ore, key patents, talent, brands, distribution networks and other vital assets. Unlike in 2001, China now has the assistance of its own, state-owned (although publicly traded) network of global companies including the world’s largest banks and insurance operations. US economic and trade policies toward China need urgent and fundamental reform.
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