12/22/2011 @ 12:28PM
Buying From China Is in Fact Buying American
This article is by Baizhu Chen, a professor of clinical finance and business economics at USC Marshall School of Business. He is also senior researcher at the Institute of Finance and Banking at the Chinese Academy of Social Sciences, chief economist of Sino-Century Capital, a venture capital firm in Shanghai, and former president of the Chinese Economists Society, and he is academic director for Marshall’s Global Executive MBA program.
Recently I had a heated exchange with my neighbor Johnny. Johnny believed that the U.S. unemployment rate, currently hovering above 9%, would become even worse. The culprit, according to him, was China. With boatloads of Chinese-made goods coming this way, and empty ships going the other way, Johnny argued, we ran a huge trade deficit. This effectively exported U.S. jobs to China while we were importing goods from there.
I, of course, think that is completely nonsense. I chided Johnny that he probably listened to too much of what our politicians preach. Johnny owns several small restaurants in an affluent neighborhood in Los Angeles. His restaurants use Chinese-made cooking pots and pans. The tables and chairs are also imported from China. Like his middle-class neighbors, Johnny shops in Target and Walmart, buying Chinese made merchandise. So I challenged him to see if he thought his family and his restaurants could survive this Christmas without using any Chinese-made products, since he was so concerned about the damage these foreign products cause for the American economy. In less than two days, Johnny came to me, frustrated, to admit he had lost the challenge. If Johnny wants to spend this Christmas without anything made in China, he literally has to tear down his house and close all his restaurants.
Photos: The Most Unforgettable Ads of 2011 America has been running a trade deficit against China for a long time. It is importing from China lots of Apple iPhones, Dell computers, Gap shirts, Hasbro toys, Mattel dolls and Nike shoes. The list can go very long. Careful eyes may immediately spot that those are all American companies. In fact, a San Francisco Federal Reserve study has found that 55% of the value of American imported goods from China actually goes to American companies and workers. In comparison, American companies and workers only capture 36% of the value added of the import from all countries combined. Buying from China gives America a much better deal than buying from other countries in the world.
Apple’s iPhone is an interesting example. In 2009, iPhones contributed about $2 billion, equivalent to 0.8% of the Sino-U.S. bilateral trade deficit. One iPhone 3GS was sold for about $600. These phones were exclusively manufactured by Foxconn, a factory in a Southern Chinese city called Shenzhen. To produce them, Foxconn had to import $10.75 worth of parts from American companies. The rest of its $172.46 components came from Korea, Japan, Germany, and elsewhere. Out of a $600 iPhone, how much does China get? A puny $6.50, or 1% of the value. Apple makes vastly more. Combining with other American companies making parts, America receives close to 70% of the value. The portion of America’s trade deficit against China truly contributed by iPhones based on value-added calculation is only a very small portion of $2 billion. Most of that $2 billion is, in fact, value captured by Apple and other American companies. China makes it possible for those companies to reward their shareholders handsomely and to provide thousands of high paying jobs in America. Yet our politicians, though they likely also use Chinese made Apple iPhones, blame China for stealing American jobs.
According to the Bureau of Economic Analysis, America imported $375 billion of goods and services from China in 2010 and exported $115 billion to China. The Sino-U.S. bilateral trade deficit is $260 billion, more than 50% of America’s total of that year. But if we calculate based on value-added contribution by the two countries, using the San Francisco Federal Reserve study, America actually has a trade surplus of $70 billion. So it is quite a puzzle to me that people in Washington are worried about America’s trade deficit with China. Using trade policies such as the trade bill recently passed in Senate to punish China for alleged currency manipulation actually penalizes companies like Apple, Dell, Gap, Hasbro, Mattel, Nike, and others. It penalizes not only poor American families and small businesses like Johnny’s restaurants, that make ends meet by relying on inexpensive Chinese products, but also thousands of high-paid American workers who work for those companies.
China does not steal our jobs. Michigan was in decline even before the Chinese showed up in the world market. Textile factories began to move out of America to Macau, Mexico, and Malaysia even before China opened its doors. RCA Corporation, the American pioneer TV maker, disappeared long before the world’s largest TV manufacturer, TCL, which today owns RCA, was born in Shenzhen. On the contrary, China creates jobs in America. Cupertino-based Apple Stores employ thousands of young associates in America, helping customers select iPhones. Hundreds high-paid professionals in New York City market Gap jeans around the world. Minnesota-based Target, with more than 1,200 stores nationwide selling lots of China-made merchandises, employs over 350,000 American workers. Thousands of UPS and FedEx workers cheerfully move boxes of Dell computers, Hasbro toys, and Nike shoes to American families. With millions of Chinese working really hard to supply us with everything from Christmas ornaments to iPhones and enabling our companies to provide thousands of high paying jobs in America, we should be thankful. That our politicians, for their political gains, accuse China of stealing American jobs is very much against basic American values.
Johnny has four Dell computers at home. He wears Nike shoes and Gap shirts. He shops at Target and Walmart. His children use iPhones. All those products are made in China. In fact, we Americans cannot survive a day without a China-made product. So please don’t feel ashamed of buying them. And don’t particularly look for goods made in America. Buying China, in fact, is buying American. Christmas is right around the corner. I am going to buy a toy panda bear, made in China, as a gift for my little niece. Who knows, a large portion of the price I pay may go to my fellow Americans.
