Trade and Globalization
The U.S. trade deficit with Japan has increased steadily over the past four years, reaching $79.9 billion in 2012, an increase of $13.4 billion (20.2 percent) over the 2011 bilateral deficit of $66.5 billion. Two of the most important causes of persistent U.S.-Japan trade deficits are currency manipulation and Japan’s vast and impenetrable network of non-tariff trade barriers. Last month, the United States and Japan agreed on language that could allow Japan to join negotiations to enter the Trans-Pacific Partnership (TPP), a proposed free trade agreement with 10 other Asia-Pacific countries (a new round of negotiations on the TPP began in Singapore last week ). Unless Japan is willing to end its currency manipulation and informal trade barriers once and for all, it should not even be allowed to participate in the TPP negotiations.
The effect of trade flows on U.S. jobs is relatively straightforward: exports support U.S. jobs but the larger volume of imports displaces even more jobs. Trade deficits such as the one we have with Japan have cost the United States millions of jobs, most of them high-paying jobs in manufacturing. Signing trade deals is an ineffective way to create jobs, in large part because they usually result in higher trade deficits. Further, trade deals have traditionally not included effective means to deal with one of the biggest causes of our trade deficits: currency manipulation by our trading partners, which acts as an artificial subsidy to other countries’ exports, and a tax on U.S. exports. Japan has a history of currency manipulation, and recently-elected Prime Minister Shinzo Abe campaigned on his intention to stimulate the Japanese economy, in part by weakening the yen. Financial markets have responded to Mr. Abe’s wishes, and the yen has declined 18.8% since October, falling to 96 yen per dollar on March 12, 2013.1Read more
When President Obama and Japanese Prime Minister Abe meet on Friday, currency manipulation and Japan’s unfair trade policies must be addressed. The Yen has declined 13% in the past three months, in part because Mr. Abe has pledged to weaken monetary policy to spur growth. A weaker Yen lowers the cost of Japanese imports in the U.S. and raises the cost of U.S. exports in Japan and other countries where our products compete. While a more expansionary domestic monetary policy is an appropriate tool for a country stuck far below economic potential because of demand shortfalls, Japan has also displayed a historic pattern of intentionally lowering the value of their own currency vis-à-vis the U.S. dollar by buying U.S. denominated assets. Because the first-order effect of this direct currency manipulation is to create demand for Japan at the expense of the U.S., which is also currently starved of demand, this is not responsible policy for a country as large and important in global trade markets as Japan.
Currency manipulation is the single most important cause of growing U.S. trade deficits and Japan has a well established reputation as a currency manipulator. Japan has expressed a desire to join the proposed Trans-Pacific Partnership (TPP), a regional free-trade agreement with 10 other countries. The TPP should include language to end currency manipulation by Japan and other trading partners. Elimination of currency manipulation by China, Japan and other countries could create 2.2 to 4.7 million jobs, expand U.S. GDP and reduce the federal deficit, according to a recent EPI report.
The U.S. trade deficit with Japan increased from $66.4 billion in 2011 to $79.9 billion in 2012, an increase of $13.4 billion (20.2 percent).1 Growing trade deficits lead to job losses and growing unemployment or weaker growth in the United States.Read more
As part of his proposals to spur job growth, President Obama promised in last night’s State of the Union address to complete negotiations on the proposed Trans Pacific Partnership (a proposed free trade agreement (FTA) with at least eight other countries in Asia and Latin America), and announced new talks on a comprehensive FTA with the European Union. This is a shame, because chronically high unemployment is a real crisis, while trade agreements are a fake solution.
The issue is simple: it is trade balances – the net of exports and imports – that can affect jobs. Unless trade agreements promise to reduce our too-high trade deficit, they will have no positive effect on jobs. Even worse, past trade agreements have actually been associated with larger trade deficits in their aftermath.
The president can end currency manipulation with the stroke of a pen, halving the U.S. trade deficit and creating millions of jobs
Five years after the start of the great recession nearly nine million jobs are still needed to return to full employment. And as the Administration lays the groundwork for its second term, job creation should be goal number one. Under existing authority, the President can execute one simple policy that would create 2.2 to 4.7 million jobs over the next three years: End currency manipulation by a handful of countries, especially China. This policy would boost GDP, reduce unemployment and, in budgetary terms cost nothing. It would, in fact, substantially reduce the federal deficit. No other policy could achieve this jobs trifecta.
Over the past fifteen years rising trade deficits have devastated U.S. manufacturing employment. Since April 1998, the United States has lost 5.7 million manufacturing jobs, nearly a third of manufacturing employment and most of those job losses were due to the growing U.S. trade deficit. Although half a million manufacturing jobs have been added since 2009, a full manufacturing recovery requires greatly increasing exports relative to imports. While exports support domestic job creation, imports (and growing trade deficits) eliminate domestic jobs. Although the overall U.S. trade deficit declined slightly last year, the trade deficit in manufactured products increased by $44.7 billion in 2012. This growing manufacturing trade deficit is a threat to manufacturing employment and the overall recovery.
Currency manipulation, which distorts trade flows by artificially lowering the cost of imports to the U.S. and raising the cost of U.S. exports, is the single most important cause of these growing trade deficits. Halting global currency manipulation by making it illegal for China and other currency manipulators to purchase U.S. Treasury bills and other government assets is the best way to reduce the U.S. trade deficit, create jobs, and rebuild the economy.Read more
To its credit, Apple is now posting monthly information tracking the extent to which employees in its supply chain are working less than its standard of 60 hours per week. The introductory language to this information states: “Ending the industry practice of excessive overtime is a top priority for Apple in 2012.” The accompanying graph itself, however, contains data from Jan. 2012 through Nov. 2012 and suggests otherwise. Not only has Apple failed to end this practice, but progress has significantly reversed in recent months.
Apple’s code of supplier conduct sets a maximum work week of 60 hours, with an exception clause, discussed below. Eyeballing Apple’s graph indicates (Apple only provides a specific number for November, so visual approximation is necessary):
- In Jan. 2012, about 16 percent of the workers in Apple’s supply chain worked more hours than Apple’s maximum standard. This proportion diminished through August, when approximately 3 percent of these workers had work weeks that exceeded this standard.
- But the proportion of workers meeting the standard dropped precipitously since then, presumably reflecting the increased intensity of work to produce and meet iPhone 5 demand.
- In November, 12 percent of the workers in Apple’s supply chain that are being tracked worked more than the 60-hour standard. This was the worst monthly compliance rate of the year, with the exception of January. More than one million workers are being tracked by Apple, so the 12 percent translates to more than 120,000 workers in their supply chain working excessive hours. Read more
Students and Scholars Against Corporate Misbehaviour (SACOM) reports that on Jan. 10, workers at one of Foxconn’s China plants (in Fengcheng, Jiangxi Province) went on strike. The factory produces Apple’s iPhone connector and products for other companies. SACOM suggests the strike resulted from the sweatshop working conditions at the plant, poor pay, lack of union representation, health and safety violations, and general lack of respect for the workers. The resulting protest by more than 1,000 workers was met with a harsh crackdown, with water cannons and physical violence apparently used against the strikers. SACOM notes the contrast between the ongoing harsh conditions reported by workers and the often-rosy public relations campaign by Foxconn and Apple.
This report deserves careful attention. SACOM is a Hong Kong-based NGO that has enlisted workers in Apple’s Foxconn factories to report on life and work inside the giant complexes. It is the most credible source of information about conditions in Apple’s manufacturing plants in China. SACOM was the organization that first revealed the wave of suicides at Foxconn, the construction of suicide nets, Apple’s use of underage students on its production lines, the continuing use of students compelled to work at Foxconn under threat of being kicked out of school, grossly excessive overtime, and many other abuses.
The New York Times and the reporters of its Dec. 26 story—“Signs of Changes Taking Hold in Electronics Factories in China”—deserve much credit for raising the profile of the abusive conditions faced by the workers making Apple products, helping to spur promises of reform. But the latest story, while portraying internal changes at Apple that could lead to reforms and describing the possibility that Apple and its competitors may advance a new manner of operating globally, provides surprisingly little evidence or analysis of the degree to which improvements have been made. It thus never gets to the heart of the matter: So far, Apple’s pledges of sweeping change have not been matched by major reforms in working conditions.
The vision painted by the story is one labor advocates, and presumably many Apple customers, share. When it comes to working hours, compensation, and other working conditions, Apple’s main supplier Foxconn will make the reforms necessary to raise standards dramatically, leading to a “ripple effect that benefits tens of millions of workers across the electronics industry.”
As ostensible evidence of Apple’s leadership and commitment to that vision, the article notes, for example, that Apple has hired 30 new staff members for its social responsibility unit and put two respected and influential former Apple executives in charge. The article also notes earlier and recent statements from Apple and Foxconn pledging to accomplish a great deal for factory workers.
The article is surprisingly thin, however, when it comes to assessing whether this vision is being fulfilled. The report includes a long vignette about the new, comfortable work chair provided to one Foxconn employee (in which the reporters argue that this helped lead her to view her job and her life prospects in a positive new manner). At other points, the article refers to some reductions in work hours, some safety improvements, a partial Foxconn response to ending the abuses of student interns, and some wage improvements. If all this sounds kind of fuzzy, that’s because it is. Read more
Here’s a sampling of links that EPI’s research team found insightful today:
- “A ‘fiscal cliff’ deal is near: Here are the details” (Wonkblog)
- “Conservatives complain Sandy bill includes millions in unrelated spending” (On The Money)
- “Assimilated by the Peterson Borg” (Paul Krugman)
- “Black jobless rate is twice that of whites” (Washington Post)
- “The Great Manufacturing Skill-Shift Labor Shortage: Hard to See” (Employment Policy Research Network)
- “A Giant Statistical Round-up of the Income Inequality Crisis in 16 Charts” (The Atlantic)
The normally-useful Wonkblog potentially leads some readers this past weekend to the wrong by pointing to a recent study on the effects of NAFTA and concluding:
“This is the pattern generally with trade liberalization. All else being equal, all parties tend to benefit, but developing countries benefit most.” [Emphasis added]
If by “parties” they mean “countries,” then this is roughly right. If by “parties” they mean “people,” then this is really wrong.
See here (and here if you really have some time to kill), but the rough story is simply that for the U.S., expansions of trade with poorer trading partners should be expected to raise national income while still lowering wages for most American workers. Even worse, the higher the national gains from trade, the larger the losses are for most American workers.
Lastly, it’s important to note that the vast majority of economic gains from an agreement like NAFTA for poor countries like Mexico could actually be obtained by Mexico unilaterally. That is, most gains come from countries reducing their own tariffs, not in gaining market access abroad. So, Mexico didn’t need NAFTA to achieve these gains—they could have had them on their own.
After serving our country, many of our nation’s veterans come home to low-wage jobs. In fact, of the more than 9 million veterans in the workforce today, over a million would see their wages go up if Congress were to pass the Fair Minimum Wage Act of 2012. The bill, introduced by Iowa Sen. Tom Harkin in the Senate and Calif. Rep. George Miller in the House, would raise the federal minimum wage from $7.25 per hour to $9.80 per hour in three increases of 85 cents, and then index it to inflation.
A few months ago, we released an analysis of the Harkin/Miller bill that showed that more than 28 million workers nationwide would see a wage increase as a result of the legislation (including the parents of more than 21 million children). Of these 28 million affected workers, roughly 1.1 million are veterans (655,000 directly-affected; 417,000 indirectly-affected)1. Here’s a full demographic profile of affected veterans.
The veteran population that would be affected by raising the minimum wage to $9.80 is similar to the overall population of workers who would be affected by the increase, yet there are a few noticeable differencesRead more
Here’s some of the interesting content that EPI’s research team browsed through today:
- “Nonpartisan Tax Report Withdrawn After GOP Protest” (New York Times)
- “With paychecks, size matters” (Los Angeles Times)
- “Mexico is now a top producer of engineers, but where are jobs?” (Washington Post)
- “Wary of Future, Professionals Leave China in Record Numbers” (New York Times)
A recent blog post by the Heritage Foundation’s Derek Scissors claims that my estimates of the number of jobs lost due to growing trade deficits with China “are demonstrably wrong.” Scissors then fails to demonstrate how they’re wrong.
That’s because he can’t. The economic models used in our report (Scott 2012, 9, Appendix and note 15) are the gold standard for research on the employment effects of trade, and “all but identical models” have been used in similar studies by the Federal Reserve Bank of New York, by Martin Bailey and Robert Lawrence of the Brookings Institution, and in a U.S. Commerce Department study that represents the work of more than 20 government economists including the chief economists from that agency and the Office of the U.S. Trade Representative.
At its core, our model is based on a straightforward application of Keynesian economics and national income accounting, which show that exports stimulate the domestic economy while imports reduce demand for domestic products. Scissors (and many others before him, such as Dan Griswold at Cato and the U.S. China Business Council) claims that imports are good for the economy, in part because they are correlated with growth. But this assertion ignores two fundamental questionsRead more
Paul Krugman and others have recently claimed that Chinese currency manipulation is “an issue whose time has passed.” There are two fundamental problems with these arguments. First, China’s global trade surplus appears to be perhaps three to four times larger than has previously been reported. Second, productivity in China is growing much faster than in the United States and other developed countries and therefore, China’s exchange rate likely needs to appreciate at least 3 to 5 percent per year just to keep its trade surplus from growing. On the first issue—what the size of the Chinese current account surplus and its recent movement tell us about the need for currency realignment—it’s worth noting that most of the decline in China’s global trade surplus since 2008 is explained by the great recession and the sluggish recovery, especially in Europe. However, the U.S. bilateral deficit with China has increased by a third since it bottomed-out in 2009, which has slowed the U.S. recovery.
Further, China’s trade data likely understates its global trade surplus by a significant amount, a problem that has been ignored by officials in the United States, the International Monetary Fund and other international agencies. The IMF relies on self-reported data from each member country. Analysis of trade data from the United Nations shows that China is massively under-reporting its exports. Read more
A number of commenters declare that currency management by our trading partners is an issue “whose time has passed.” At the risk of violating Brad DeLong’s wise rules (Paraphrased: “Mistakes are avoided if you follow two rules: (1) Remember that Paul Krugman is right, and (2) If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule No. 1”), I’m not convinced by claims—even Krugman’s—that this is a dead issue.
Look at one key piece of evidence Krugman presents: the real (inflation-adjusted) appreciation of the yuan in the last year. But, as Krugman himself has said in previous writings on this:
“Notice that I didn’t mention the value of the renminbi at all in this account [ed: of China’s currency management]. … You want to keep your eye on the ball: it’s the artificial capital exports that are the driving force here.
We know that the renminbi is grossly undervalued … on a PPE (proof of the pudding is in the eating) basis: the current value of the renminbi is consistent with massive artificial capital export, and that’s that.” [Edited for clarity; I’m pretty sure I haven’t done any (much?) damage to his argument].
So, have the artificial capital exports from China continued? Read more
As a follow-up to my earlier post, another issue likely to be raised in tonight’s debate is the issue of federal budget deficits that force us to “borrow from China.” Is this a real problem, and will it hurt if China suddenly decides to stop lending us money?
No and no.
First, rising budget deficits since the Great Recession began have actually been more than financed by rising domestic savings of U.S. households and businesses. In fact, the huge spike in private savings that began in 2007 (see the chart below) is the reason for the Great Recession: households and businesses stopped spending in 2008 and the economy cratered thereafter, cushioned a bit by the rise in government deficits. So, we have not relied on rising borrowing from China to finance the increased budget deficits in recent years, instead the rise in domestic savings has been more than sufficient to cover these.
But what happens if China turns off the spigot and stops trying to buy U.S. Treasuries and other dollar-denominated assets?
This would have two effects. First, the decline in available savings that can be borrowed by American households, businesses, and governments would decline. In normal times, this could bid-up interest rates. Think of interest rates as the price of loanable funds—as the supply of loanable funds falls, the price should be expected (all else equal) to rise. But we’re not in normal times. Instead, the American economy remains characterized by a huge excess of savings over demand for new loans, meaning that there’s no upward pressure on interest rates. Absent this upward pressure on interest rates, no damage would be done if China stopped plowing money into buying dollar-denominated assets.
Second, if China did stop buying U.S. assets, the value of its currency would increase vis-à-vis the dollar, and this would spur U.S. exports, both to China as well as to third-country markets.
So, in regards to China buying the U.S. government’s debt, it’s not only nothing to worry about, it would be better for the U.S. economy if they stopped.
Barry Commoner, path-breaking scientist and social activist, passed away yesterday at the age of 95. I was fortunate enough to work for Barry in the late 1970s as a research assistant on two of his books, The Poverty of Power (1976) and The Politics of Energy (1979). Commoner, a botanist and biologist, was a founder of the environmental movement, along with peers such as Rachel Carson (The Silent Spring, 1962) and Margaret Meade. He believed that scientists have an obligation to share scientific information with the general public to enable them to participate in public debate on scientific issues. His work on the effects of nuclear fallout, documented through the collection of baby teeth and reinforced by a petition signed by 11,201 scientists worldwide, provided the scientific foundation for the adoption of the Nuclear Test Ban Treaty of 1963.
Commoner also helped establish the roots of today’s BlueGreen Alliance of labor and environmentalists. He first began working with Tony Mazzocchi, a longtime leader of the Oil, Chemical and Atomic Workers in the 1950s, who collected baby teeth from the children of members of his Long Island local union. Commoner’s work showed the connections between the environmental crisis and social and economic issues such as “poverty, injustice, public health, national security and war,” and that the roots of the environmental crisis lay in excessive corporate power and flawed systems of production. He argued that only by changing those systems—for example, by replacing nuclear power, coal and oil with renewable energy—could the root causes of our environmental problems be eliminated. Not coincidentally, these same policies would create millions of new domestic jobs, reducing pollution, inequality and our trade deficit simultaneously. As Commoner established in The Closing Circle (1971), the first of his “four laws of ecology” was, “Everything is connected to everything else.” Indeed.
The recently released State of Working America, 12th Edition, documents in a variety of ways how the last decade in the United States has been a lost decade for all but the very well-off. One manifestation of this lost decade is the decline in the share of households owning stocks.
First, it’s useful to point out that even with the “401(k) revolution,” a surprisingly small share of households ever held any significant amount of stocks. As the figure shows, at its peak in 2001, just more than half (51.9 percent) of U.S. households held any stock, including stocks held in retirement plans like 401(k)s. Furthermore, many of that 51.9 percent held very small amounts—just over a third (37.8 percent) had total stock holdings of $10,000 or more. (Read this snapshot for more on the “democratization of the stock market” that never actually happened.) And even those modest shares have since lost ground. By 2010, less than half (46.9 percent) of all households had any stock holdings, and less than a third (31.1 percent) had stock holdings of $10,000 or more.
The strong rebound in stocks since 2009 amidst persistently high unemployment highlights the disconnect between Wall Street’s financial markets and most people. The stock market simply has little or no direct financial importance to the majority of U.S. households. Since 1989, the top fifth of households consistently held about 90 percent of stock wealth, leaving approximately 10 percent for the bottom four-fifths of households. If you want to assess how the economy is performing for most households in this country, don’t look to the stock market, look to the labor market, and measures of job opportunities like employment and wage growth.
Two new studies find that unemployment at older ages may shorten life and that the gap in life expectancy between less and more educated workers is widening. Though neither result may seem surprising, the first is at odds with some previous research, while the second reinforces earlier findings but provides shocking new statistics—notably the fact that the least educated white women have seen their life expectancy at birth fall by five years since 1990, as highlighted in a recent New York Times article.
A seminal paper by Christopher J. Ruhm (2000) found that recessions were associated with lower mortality rates, a counterintuitive result confirmed by later studies. Ann Huff Stevens et al. (2011) identified a possible reason: Reduced employment opportunities in the broader labor market appeared to leave nursing homes better staffed, explaining why the pro-cyclical mortality effect was concentrated among seniors.
In other words, while higher unemployment may be associated with lower mortality, this doesn’t necessarily mean working is bad for your health. Later research focusing on workers who lost their jobs (as opposed to economy-wide unemployment rates) found Read more
Here’s some of the thought-provoking content that EPI’s research team came across today:
- “About the 47 Percent Who Don’t Pay Federal Income Tax: Mitt, Meet Andrea” (Tax Vox)
- “Five Myths About the 47 Percent” (Tax Vox)
- “Labor’s Declining Share of Income and Rising Inequality” (Federal Reserve Bank of Cleveland)
- “Obama vs. Romney on China” (Center for American Progress Action Fund’s Adam Hersh via CNN.com)
- “Small Business and the Expiration of the 2001 Tax Rate Reductions: Economic Issues” (Congressional Research Service)
The National Association of Manufacturers is showing itself to be less a genuine representative of the nation’s manufacturing businesses than a political entity tied to the Republican Party. Despite the evidence that the Obama administration imposed fewer regulations in its first three years than the Bush administration, the NAM complains constantly about the regulatory burden Obama is imposing. In its own words: “New Survey Paints Bleak Picture Before 2012 Elections.”
This is especially surprising since we heard no such complaints at the end of George Bush’s first term.
It begins to look hypocritical and totally political when we consider that each year of the Bush administration resulted in a year-over-year loss of manufacturing jobs, a streak that ended only after Obama’s auto bailout and Recovery Act took effect. Over the last two years, manufacturing employment grew from 11,340,000 to 12,074,000, a gain of more than 700,000 jobs.
Looking at these data, it is hard to conclude that the increasing regulatory burden of the last few years—if there has been an increase, as NAM claims—has hurt manufacturing.
The latest red flag that all is not well with iPhone 5 production is the overnight riot that occurred at the dormitory of one of Foxconn’s plants in China that “makes parts for Apple’s iPhones and hardware for other companies” (quoting from NPR). According to Reuters, this riot involved 2,000 workers, was broken up by about 5,000 police, and the factory has been shut down for an indeterminate length of time.
The proximate cause of the riot is not yet clear; Foxconn said “the trouble started with a personal row that blew up into a brawl,” but Twitter-like postings claimed that “factory guards had beaten workers and that sparked the melee” (both quotes from the Reuters story). It is, of course, particularly difficult to obtain accurate, unbiased information of conditions at factories in China. At minimum, however, the severity of the riot demands an independent investigation and should give anyone pause before concluding that any worker rights concerns connected to the production of iPhones by Foxconn have been addressed.
Such pause is especially appropriate given other information that has come to light in the past two weeks. Read more
“It is disappointing that no matter how advanced the technology introduced by Apple is, the old problems in working conditions remain at its major supplier Foxconn.” — SACOM, Sept. 20, 2012
In Sept. 2012, researchers from the Hong Kong-based Students and Scholars Against Corporate Misbehaviour (SACOM) conducted off-site interviews at Foxconn’s plants in Zhengzhou, China; the sole product of these plants is the iPhone. SACOM just released the findings of its interviews, New iPhone, Old Abuses: Have Working Conditions at Foxconn in China Improved? The report (sometimes quoted verbatim below) indicates:
- Overtime work is excessive, and well above that permitted by Chinese law. Monthly overtime hours have been between 80–100 hours in some of the production lines. This is two to three times the amount (36 hours) allowed by Chinese law. Workers often only get one day off every 13 days.
- Overtime work is often unpaid. Workers have to attend the daily work assembly meeting without payment. Also, on some production lines, workers must reach their work quota before they can stop working even if that means working overtime without pay. Read more
The Obama administration announced another trade case against China, this one focused on China’s blatant, illegal subsidies to exporters of auto parts. These subsidies have helped China take a growing share of the huge U.S. auto parts market, at a cost of tens of thousands of good manufacturing jobs. EPI researchers reported on the breadth and depth of these illegal subsidies earlier this year and warned that they threatened to decimate employment in the U.S. industry just as it got back to its feet after the Great Recession. As EPI’s Rob Scott and Hilary Wething wrote in January: “Chinese auto-parts exports increased more than 900 percent from 2000 to 2010, largely because the Chinese central and local governments heavily subsidize the country’s auto-parts industry; they provided $27.5 billion in subsidies between 2001 and 2010 (Haley 2012).” The U.S. trade deficit in auto parts with China reached $9.1 billion in 2010 and has continued to grow.
It’s great to see President Obama stand up for fair trade, even if the timing is provoking some skepticism in the media. As I’ve pointed out to several reporters, Republican presidential nominee Mitt Romney has been calling on Obama to get tougher on China’s unfair trade practices. Romney can hardly complain when the president does exactly what Romney recommends. And with tens of thousands of good jobs at stake, it would have made no sense for Obama to delay this case until after the election; every month of delay would just mean more bankrupt manufacturers, more plant closings, and more jobs lost.
The administration, following its standard, cautious practice, has not tackled the full extent of illegal Chinese subsidies. Rather, it’s gone after the low-hanging fruit, the clearly prohibited, high-profile, publicly reported, targeted subsidies that depend on export volume. There’s much more to do. In a report for EPI, Usha Haley, Professor of International Business at Massey University in New Zealand, documented more than $27 billion in Chinese government subsidies to the auto parts industry from 2001 to 2011 and identified another $11 billion in subsidies planned for the future. Preventing this massive intervention will be critical if the U.S. auto parts industry is to get back on its feet, let alone to thrive and grow. The case announced today was a logical place to start.
Today is the 49th anniversary of Dr. Martin Luther King’s brilliant “I Have a Dream” speech, the final speech of the 1963 March on Washington, which was officially titled the “March on Washington for Jobs and Freedom.” That event is obscured by the distance of a half-century, but it’s worth the effort to review the official demands of the march and the economic thinking of King and his allies, A. Philip Randolph of the Brotherhood of Sleeping Car Porters and Walter Reuther of the United Auto Workers. What they wanted for Americans then is still badly needed today—perhaps more than ever.
The March was about civil rights, voting rights and racial equality, but it was also about the need for jobs and for jobs that paid a decent wage. The marchers wanted the federal minimum wage raised nearly 75 percent, from $1.15 an hour to $2.00 an hour. They also called for “A massive federal program to train and place all unemployed workers—Negro and white—on meaningful and dignified jobs at decent wages.”
In 1963, the unemployment rate averaged about 5.0 percent, which looks good compared to today’s 8.3 percent, but King and the other organizers wanted full employment and believed it was the federal government’s responsibility to provide it. Read more
Apple’s key Chinese supplier is Foxconn, made famous by the rash of suicides committed by its employees, who live packed into dorms, far from home, working brutal schedules of overtime (sometimes as much as 80 hours a month, on top of the core 160 hours), subjected to verbal abuse and humiliating punishment by supervisors, and systematically cheated on wages.
When labor rights groups in China and Hong Kong exposed these conditions and the New York Times published a front-page exposé, Apple hired the Fair Labor Association (FLA) to help it improve conditions—and its corporate image. In a public report, Apple committed itself to a broad range of reforms, and has made some headway on several fronts, according to the FLA.
But many observers are skeptical because Apple and Foxconn have put off most of the reforms that would actually cost them some money. The FLA could not, for example, get the companies to agree to comply with Chinese law limiting maximum overtime hours until the summer of 2013, and the companies continue to subject Foxconn workers to 60 hours of overtime per month—nearly twice the amount of overtime permitted by law. The companies also pledged only to study whether the workers were right in their complaints that wages are too low to meet basic needs. And most telling, there is no indication the companies have kept their public promise to pay back wages to the hundreds of thousands of employees Foxconn systematically cheated by working them “off the clock.” Read more
The U.S. economy has created 2.6 million net jobs since the end of the Great Recession in June 2009. According to a Los Angeles Times analysis of Bureau of Labor Statistics data, men have filled 2.07 million of these new jobs. There are several possible explanations for this, and a couple of important points to keep this disparity in context:
- Men suffered higher levels of job loss during the recession than women, and their level of employment today relative to pre-recession levels is still lower than women’s.
- Women hold the majority of jobs in the public sector, which is by far the sector that has seen the worst performance since the recovery began.
- Male-dominated manufacturing is recovering, albeit slowly.
- Men are taking jobs in sectors that women have traditionally been the majority in.
The construction sector suffered the largest job losses of any industry during the recession, followed by manufacturing. These sectors are overwhelmingly male, meaning that their initial losses in the recession outpaced losses for women. Even today, unemployment among men is 8.4 percent, while for women it’s 8.0 percent.
Because women have historically filled the majority of public-sector jobs, they’ve been disproportionately affected by state and local governments’ decisions to cut positions in the wake of state fiscal troubles—a phenomenon that has largely occurred since the recession’s end. An EPI report from May found that of the 765,000 public-sector jobs lost between 2007 and 2011, 70 percent were jobs held by women. While the private sector has slowly recovered some of the jobs it lost during the recession, the public sector is still cutting them at a rapid rate; 2011 was the worst public-sector job decline on record. This public-sector employment loss is almost surely the single largest reason for women’s comparative struggles since the recovery began. Read more
The Obama administration announced yesterday that it has filed a complaint at the World Trade Organization (WTO) with China over its tariffs on large vehicles exported from the United States to China. This is the seventh complaint filed by the administration against China, and the White House noted that “the previous six have all been successful.”1 The Obama administration should be applauded for its continuing support of the U.S. auto industry, and for this action, which will help preserve U.S. jobs supported by about $3 billion of U.S. exports in 2011.
Much more needs to be done to stop unfair trade and industrial policies in China’s auto industry, which the Chinese government has targeted as a “pillar industry,” for development. Between 2001 and 2011, according to a report by EPI Research Associate Usha Haley, “the Chinese auto parts industry has received about $27.5 billion in subsidies.” U.S. imports of auto parts (including tires) increased more than 600 percent between 2001 and 2011, and are on track to reach $14.5 billion in 2012. The rapid growth of subsidized and unfairly traded auto parts from China puts at risk every job both directly and indirectly supported by the U.S. auto–parts industry. The U.S. auto parts industry directly and indirectly supported 1.6 million jobs in 2009, with jobs at risk in every state.
Adding insult to injury, China continues to manipulate its currency. This magnifies the benefits of subsidies and other unfair trade policies that benefit China’s auto-parts exports. Currency manipulation artificially reduces the costs of China’s exports and inflates the costs of exports from the United States (and other countries) in China and all other countries where they compete with China. I estimated last year that a 25-to-30 percent appreciation of China’s yuan and other manipulated Asian currencies would support the creation of up to 2.25 million U.S. jobs, stimulating up to $286 billion in GDP growth (1.9 percent) and reducing federal budget deficits by up to $71 billion per year. Read more
A story in Tuesday’s Wall Street Journal highlights a truth about the economy that Washington’s policy makers have chosen to ignore. The value of our currency relative to our competitor nations’ currencies is a huge driver of factory location. Despite its positive connotations, a strong dollar is bad for U.S. exports and U.S. manufacturers. For years, Japan bought U.S. treasurys as a way to cheapen its own currency and strengthen ours, just as China does. The result was that Japanese imports to the U.S. were artificially cheaper and Japanese cars built in Japan had a price advantage even overseas, when competing with U.S.-built cars. (The same would be true for refrigerators or construction equipment, or any other manufactured goods.)
But lately, Japan has been unable to prevent its currency from strengthening against the dollar, so much so that the advantage has been flipped, and it is beginning to make more sense for Japanese automakers to build their cars in the U.S. than in Japan. As a result, Nissan is closing plants in Japan and moving lines to Tennessee and Mississippi, and Honda plans to export cars from the U.S. in large numbers—150,000 a year by 2017.
What is true for Japan is true in spades for China, which for years has maintained a weak yuan relative to the dollar. Other countries in Asia have also followed China’s lead. If China let its currency strengthen, products made in China would be much more expensive here, leading many producers to move manufacturing operations back to the U.S. By the same token, products made in the U.S. get an immediate price advantage and would once again be competitive in world markets.
The Obama administration and Congress should agree to legislation that would force China and other Asia currency manipulators to give up their tactics and give our manufacturers a fair chance to compete. As EPI’s senior trade economist Robert Scott has shown, no other single legislative action is likely to create more jobs, do more to correct our trade deficit, or do more for our budget deficit.