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Richmans' Trade and Taxes Blog
Rising ChinaTrade Deficit Cost One-Half Million U.S. Jobs in 2010
In September, Robert Scott of the Economic Policy Institute predicted (Rising China Trade Deficit will Cost One-Half Million U.S. Jobs in 2010) that our trade deficit with China would grow by $40 billion in 2010, as compared to 2009 and that this would cost the United States a half million jobs. He was very close. The goods trade data from 2010 (service data is not yet available) shows that the deficit grew by $46.2 billion. That deficit is shown in the graph below as the area between the red and blue lines:
As a rule of thumb, we generally estimate that every American manufacturing job lost to growing trade deficits costs the United States about $100,000 in manufacturing production. So, we would estimate that $40 billion in additional trade deficit would only cost the U.S. an additional 400,000 jobs. Scott, however, uses more precise methodology and comes up with an estimate of job loss that is about 25% higher. Here's what he writes about his methodology:
He concludes correctly:
Currency manipulation, illegal subsidies, and other unfair trade practices have cost the United States and other countries millions of jobs. Rising trade deficits with China will cost one-half million badly needed U.S. jobs in 2010 alone. Ending currency manipulation would be good for the economies of both countries—it would reduce inflationary pressure in China and increase the real incomes of Chinese workers. And it would help rebuild demand for U.S. manufactured goods. Currency realignment can create more than 1 million U.S. jobs, at no cost to the Treasury. It can also stimulate U.S. GDP growth and reduce the U.S. budget deficit by up to $500 billion over the next six years.2 Congress should get tough with China and other currency manipulators who have refused to make the major revaluations needed to rebalance global trade flows. They are unlikely to change their ways unless threatened with substantial import tariffs. It is time for Congress to act and force the hands of the administration and Chinese currency manipulators.
When jobs are lost to trade deficits, they don't just cause unemployment, they cause a reduced median income when American workers lose productive good-paying manufacturing jobs and have to take less-productive lower-paying jobs in other sectors. There is a simple solution here. The United States could impose a WTO-legal scaled tariff to balance trade.
Journal of Economic Literature:
Atlantic Economic Journal: