Pick something up from your desk or countertop, anything at all. Chances are that it was made in China. We just tried that experiment -- and our clock and stapler came from Chinese factories, along with $296 billion of other goods imported into the United States last year.
Those imports are the driving force behind calls for a stronger Chinese yuan and the renewed threat of a congressional bill to add a 27.5 percent tax on Chinese products -- calls that China has pushed back against, with Premier Wen Jiabao reiterating the country's determination to keep the yuan "basically stable." And both are based on the assumption that if the yuan is more expensive relative to the dollar, U.S. domestic production will rise and the U.S. trade imbalance will fall. But neither assumption is correct.
For one, U.S. domestic production is actually rising -- even if employment in manufacturing is not. The percentage of jobs in the sector has dwindled from 20 percent of the total in 1979 to 10 percent today, not due to China so much as U.S. innovation. Over time, manufacturing has become more automated and efficient, and factories now produce more goods with fewer workers (many of whom have transitioned into the service industries). The United States today produces nearly a quarter of all global goods, up from about a fifth a decade ago -- even with fewer employees. The problems of the American factory worker are real, but cannot be solved with trade embargoes against Beijing.
China's dramatic manufacturing growth over the same period makes it look like Guangzhou has stolen jobs from Detroit. But the growth of China's manufacturing sector, and its accompanying jobs, came at the expense of other countries in Asia, not across the Pacific. Televisions and audio equipment that once came from Japan, for instance, are now made in China. By 2007, Japan produced 6 percent less of the world's goods than it did in 1995 while China produced 7 percent more, rising to an 11 percent share of the global total. Goods once made in Thailand, Malaysia, and Singapore are increasingly made or assembled in Chinese factories. What is striking about all those items on your desk is not how many are made in China, but how few are made in other Asian countries, even ones with low-cost workers and friendly trade policies.
Making Chinese products more expensive in the United States will do nothing to shift production to U.S. factories. Let's say that a certain kind of cell phone costs $100 if made in China and $200 if made in the United States. Using tariffs to increase the price of the Chinese version to $130 does little to make the domestically produced version more attractive, and nothing to encourage local hiring. Furthermore, increasing the value of the yuan does not increase U.S. exports by making them cheaper abroad. If the yuan rises in value, it does not spur Germans to start driving Fords.