By Raz Koroh
President-elect Donald Trump spent much of the campaign blaming China for America’s economic woes. It is true that China is partly to be blamed as it sells a lot more to the United States than it imports, consequently responsible for the closure of traditional manufacturing industries in America’s industrial belt. Trump has also vowed to name China a currency manipulator (and impose a hefty import tax on China-made products) on his first day in the White House, pointing out the fact that had the Chinese currency not been kept artificially low by the Chinese government through extensive buying of the U.S. dollar, U.S. based manufacturers would still be in business today (even though the actual truth points to the fact that the Chinese government has been trying to prop up their falling currency due to massive capital outflow from China into the United States). Will Donald Trump really carry out his threat? Here are two factors to consider.
ECONOMIC GROWTH. There is not a shadow of doubt to the fact that had emerging economies like China and India not given the opportunity to participate in global trade, the world economy will be in a much worse situation that it is in presently. Why? This is due to the simple fact that when multinational businesses open factories in emerging economies like China and India, millions of new jobs are created, and the multiplier effect of this phenomenon is in the tremendous boost in household spending across emerging economies; for instance, a single household head in the U.S. benefiting from protected employment pales in comparison to a hundred household heads in China or India benefiting from merit-based employment, as more household spending logically benefits even the U.S. economy once initial job losses (in labor-intensive manufacturing) are offset by subsequent job creations in other fields (in high-tech manufacturing and services). Indeed, it is a fact that the U.S. economy as a whole has grown tremendously well compared to many other developed economies such as Europe; and it is not a coincidence that this is mainly due to the dual effects of a fast growing demand from overseas (especially China) and the ability of the U.S. economy to provide this demand with goods and services that others cannot produce to the same standard as the United States.
BALANCE OF PAYMENTS. Trump’s economics experts like to focus on the considerable visible trade deficits China had been running against the United States. This is the economic equivalent of looking at one tree but missing out on the forest altogether. In other words, they completely dismiss the big picture. How is that so? Well, visible trade is the import and export in physical goods and services, but excludes the import and export in investment interest, profits and dividends (invisible trade), both visible and invisible trades add up to the so-called current account balance; next, the current account combines capital account to give us the more representative balance of payments. It is true that that the U.S. economy perennially suffers current account deficits with China (USD 288bil. in 2016) which is due to U.S. exports to China (USD 92bil. in 2016) being less than Chinese exports to the United States (USD 380bil. in 2016). But at the same time the U.S. is enjoying capital account surpluses with China, due to a continuous influx of capital flow out of China, which in turn is due to the slowing down of the Chinese economy over the last several years. The huge capital inflow stimulates the U.S. economy in areas that the U.S. do better than the rest of the world, such as real estate, high technology, and not to mention the entertainment industry that is Hollywood! In short, whatever is considered “stolen jobs” is in fact “recreated jobs”; the United States may have experienced a considerable hallowing out of its manufacturing industry, but it has proven to be resilient in industries that it should realistically be focusing on.