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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

September 20, 2011 at 9:50 AM

Can Locke speak truth to China?

New U.S. Ambassador to China Gary Locke said all the right things here last week: Beijing should avoid unfair trading practices, buy more American goods, and increase intellectual property protection. “Right,” as in diplomatic. But like everyone else in government leadership, he’s unwilling to publicly speak the truth about the imbalances in trade with China and their causes.

The Economic Policy Institute reported today that our $278 billion trade deficit with China cost or displaced nearly 2.8 million U.S. jobs between 2001 and 2010, about 2 percent of total employment. That deficit has increased from $84 billion in 2001 when China entered the World Trade Organization. This doesn’t even account for China’s downward pressure on wages.

The biggest losers in terms of total jobs: California, Texas, New York, Illinois, Florida, North Carolina, Pennsylvania, Ohio, Massachusetts and Georgia. A total of 10 states saw the jobs eliminated or displaced exceed 2.2 percent of total employment (New Hampshire, California, Massachusetts, Oregon, North Carolina, Minnesota, Idaho, Vermont, Colorado and Rhode Island). Washington is an unusual winner, but even here the EPI analysis shows more than 52,000 net jobs displaced.

The problem is complex, of course. It involves American consumers overextending themselves to buy cheap junk at Wal-Mart, American multinationals eagerly setting up shop in China and our wars being fought on credit from Beijing. The sensitive issues of Taiwan and China’s increasingly assertive reach for energy in the South China Sea come into play, too. Stability, and the survival of the communist party, depends on massive job creation, and that means an export-based economy that distorts trade. State capitalism is not constrained by politics or pluralism, so big investments in infrastructure are leaving us behind, while efforts to corner rare-earth metals and sustainable energy technologies are raising a national security risk. As Locke said on CNBC today, China’s undervalued currency gives it an “unfair advantage.”

But the trade problem can be boiled down to the simple fact that China won’t buy enough American exports. None of Locke’s predecessors have had luck in changing this, aside from the managed trade of a few big deals with companies such as Boeing. This isn’t free trade. It’s not sustainable. We all know this. But D.C. continues to spin out the fiction that a few tweaks will solve the problem.

UPDATE: A classic example of how this spools out is today’s announcement by General Motors that it will move electric vehicle development to China, making it very likely that GM will build its electrics there for export, including back to America. China pressures its U.S. “partners” to not only build there, but “share” technology. That’s not how trade is supposed to work, especially if it is to retain the support of Americans who are downwardly mobile as a result of how the game is played now.

Comments | More in China economy and business, International economy, Trade

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