If the United States could produce real goods and services as abundantly as it produces outright falsehoods and hopelessly obsolete arguments about its trade with China, today’s recovery wouldn’t be so feeble and debt-led. One of the biggest such urban trade legends took a major hit yesterday. Let’s see if other Mainstream Media other than the Financial Times report these new findings – much less if American leaders will permit them to intrude on the China trade fantasies in which they keep floating.
Since bilateral trade between the two countries began exploding in the 1990s (mostly on U.S. imports), apologists for the policies responsible have insisted that the U.S. economy as a whole, including its workers, would ultimately benefit because freed up commerce would generate all the benefits that trade expansion is in theory supposed to create. (My book, The Race to the Bottom, documents many examples.) Principally, China would concentrate on turning out low-value, labor-intensive goods, and enable American companies and their employees to produce much more advanced, and lucrative, goods as well as services.
Abundant evidence of rapid changes in these patterns of specialization has evoked an equally confident reply: Data indicating that China’s exports of higher value goods are surging – mainly because U.S. and other foreign multinational companies keep investing more in higher value China production – has been seriously misleading.
The reason? Those exports overwhelmingly consisted of U.S.- and other foreign-produced parts and components that the Chinese simply assembled. Thus the overwhelming share of the value of Chinese exports, including Chinese exports to the United States, was Made in America – or Germany or Japan or Korea. And therefore these Americans and other foreigners reaped the lion’s share of the benefits of these items’ manufacture and sale.
I wrote last year that the main specific form these arguments were taking were of scant comfort to Americans, because in the main examples used (various Apple products), most of the manufacturing content that was not Chinese wasn’t American, but Asian or German.
I’ve also noted there’s a more fundamental point that the panda-huggers were missing. They seemed to assume that Chinese exports would always contain very low levels of Chinese content. In fact, they ignored abundant direct evidence that China was moving rapidly up the value and technology chain – mainly in the form of China’s exports (including all those outside electronics) consisting of ever higher shares of advanced manufactures.
Here’s where that Financial Times piece comes in. It reports on new World Bank and IMF research contending that Chinese content levels of Chinese exports was in fact rising robustly – from less than 40 percent on average in 1993 (not so coincidentally, just as the United States was deciding to grant China normal trade status each year despite its systemic human rights violations) to 65 percent nowadays.
I’m not saying that these findings are dispositive. In the first place, they rely largely on always-questionable Chinese government data. But even if Beijing could always be trusted, its ability to track independently the humongous flows of various levels of intermediate inputs of final products will always be limited – just like the ability of any government to meet this challenge, which has grown exponentially as the output of manufactured goods has become fragmented and internationalized.
So even though these reports of rising Chinese content levels track well with everything else of value known about manufacturing in China and its evolution, they underscore the urgent need for better data. And the main problem here, especially regarding the China and other foreign operations of U.S.-owned multinational companies, is not lack of wallet (to borrow a well-worn cliché) but lack of will.
These companies have a very precise handle on the content levels of their products – they couldn’t be so successful without this supply chain knowledge. But they keep it very closely held, and indeed only release it selectively and self-servingly. It’s high time to end their monopoly on such knowledge, meaning that Washington should require any company above a certain size doing business in the United States to report regularly on the foreign and U.S. content levels of its output.
Even better, the U.S. government has already set a terrific precedent with the content stickers that foreign and domestic auto companies are obliged to slap on the vehicles they sell. These stickers aren’t perfect; their main problem is their failure to distinguish between U.S. and Canadian content. But they go a long way toward telling consumers where their purchases come from. Even more important, they go a long way toward telling citizens and their elected leaders who the winners and losers from international trade in this key industry, at least, really are, and the requirement should be expanded to cover other crucial manufacturing sectors as well.