The Trump administration is expected to annouce a Section 301 investigation under the 1974 Trade Act into China’s taking of intellectual property from U.S. firms. Once the investigation is complete, a number of sanctions might result, including tariffs on Chinese imports and barring Chinese companies from doing business in the United States. This investigation should be part of a thorough review of U.S.-China trade, which is long overdue.
Since the 1950s, promoting trade has been a dominant feature of the global economy. Many believe trade has been the most important determinant of America’s rising, wealth, and power. Mainstream American politicians, on the left or the right, who may be worlds apart ideologically, socially, and fiscally, mostly agree trade is good for America. But the U.S.-China trade has brought about a series of negative consequences for the United States.
Since China joined the World Trade Organization, China has gained a staggering $3.5 trillion dollars from the United States through trade, according to the U.S.-China Economic and Security Review Commission. That is a net loss of $3.5 trillion dollars for America.
Keep in mind this number is the simple summation of U.S.-China annual trade deficits from 2001 to 2016. It does not include the lost interest and returns if the money were invested in other opportunities. The U.S.-China trade deficits may be the greatest wealth transfer from one country to another through trade in human history. Why would America want to enrich a dictatorship, a human rights abuser, and a geopolitical foe?
Facing stiff competition from low-cost Chinese manufacturers, many American companies chose to outsource the production to China. As a result, big corporations and their executives have reaped billions in profit. But American workers were shortchanged: their employment prospects diminished, and their livelihood lost. The Economic Policy Institute, a left-leaning Washington think tank, estimated the trade deficit with China cost the U.S. 3.2 million jobs between 2001 and 2013, and three quarters of those jobs were in manufacturing.
Manufacturing jobs used to be a surefire path to earn a middle-class living for American workers. Outsourcing forced American workers out of good-paying jobs with benefits into lower-paying service jobs and part-time jobs. A study done by Rob Scott of EPI estimated that in 2011 alone this resulted in direct wage losses of $37 billion for the 2.7 million workers displaced by the U.S.-China trade.
The disappearance of good jobs has also changed the composition of American jobs. Many low-skill jobs that used to be held by American workers without four-year college degrees evaporated. This reduced the median wage of the group by $1,800 a year, according to EPI’s research. In the United States, there are roughly 100 million workers with a high school diploma or less. The total annual wage losses suffered by this group are in the ballpark of $180 billion, approximately one percent of U.S. GDP.
Lack of hope, purpose, and opportunity drives people to alcoholism, substance abuse, and suicide. In the Rust Belt states and rural America, many counties and towns have seen a surge in the number of “deaths of despair”—deaths from drugs, alcohol, and suicide—especially for non-Hispanic whites with a high school education or less. From 1999 to 2013, the mortality of this group aged 45-54 has increased by 0.5 percent every year. Researchers believe the rising mortality can be traced to unemployment and declining economic opportunities.
Ordinary Chinese citizens got a crummy deal as well. It is generally believed the economic growth in the past 30 years raised the standard of living for millions in China. However, most of the benefits went to those at the top of the income distribution: princelings, officialings (relatives of government officials), and crony capitalists.
According to CNBC, the richest 209 parliament delegates in China each has a net worth of more than 2 billion RMB yuan (US$300 million). Chinese workers are not so lucky. In order to make its products artificially cheap, China represses the labor rights of the workers and suppresses their wages. Due to poor working conditions, lack of training and awareness, long work time, and low pay, China has the world’s highest workplace fatality and injury rate.
In the West, some advocated the best way to improve human rights in China is through trade and investment. However, after 30 years of economic reform and trillions of dollars of wealth infusion, there is no evidence that prosperity provides the impetus for the Chinese Communist Party to loosen its absolute control over the Chinese people.
Instead, the newly found wealth has emboldened the CCP dictatorship and likely extended its life span. One example: since 2011, China’s budget for stability maintenance (“weiwen”) has surpassed defense spending. That is the money for surveillance, censorship, and putting dissidents and people with faith in jail. In a sense, the West is aiding and abetting the CCP, the most egregious violator of basic human rights, through trade.
The U.S.-China trade is a one-sided, abusive relationship that mostly benefits the CCP and America’s elites. It is hurting our economy and American workers and tearing up our social fabric. Chinese workers are also getting the short end of the stick. It is time to revamp U.S.-China trade policies. The new policies must put America’s national interest first, and mutually benefit the American and Chinese people.