Let’s face it. It is tough to get much of a headline out of something that didn’t happen. (Imagine a front page that blares, “Earth fails to collide with Mars for billionth consecutive day.”)
There are times, though, especially in economics, when something that doesn’t happen can be very important. Take the collision between China and the United States over trade, for example – the collision that didn’t happen.
If you visit the Port of Seattle docks to watch the cranes unloading containers from the Chinese ships, it doesn’t seem as if anything is holding back their exports to the United States. But, in fact, there have been restrictions on textiles – quotas on just how many shirts, sheets, socks, and other items of clothing they can ship to us each year.
These quotas were scheduled to expire on New Year’s Eve, and the United States was not looking forward to it. The American textile industry already had that gaunt look of a business pushed beyond endurance by low-cost imports. Opening the gates full wide to even more Chinese textile products might just reduce the entire industry to remnants.
Industry leaders in the United States wanted the Bush administration to introduce what are called “safeguards” – quotas on Chinese imports that could be imposed when the volume of those imports threatened the survival of the U.S. industry. China had agreed to safeguards as part of the price of its admission to the World Trade Organization.
The Bush administration wasn’t all that enthusiastic about imposing the safeguard quotas, but it was even less inspired by the likelihood of thousands of lost textile jobs. That kind of spike in unemployment could rattle the economic recovery that, even though making progress overall, still occasionally lurches and stumbles forward, sideways and backwards.
As it turned out, though, the safeguards weren’t necessary. Apparently wishing to avoid a conflict with the United States, the Chinese government announced that instead it will impose an export tax on textile shipments. Exactly what those export tariffs will look like, and their effect on the flow of Chinese clothing and other textiles to the United States, isn’t known. The Chinese government has been pointedly nonspecific about the numbers and other details.
The Chinese government’s action is fine as far as it goes. Certainly a non-event is preferable to a trade confrontation in most cases. The problem for U.S. industries, and the U.S. economy, though, isn’t going away simply because the Chinese see that disrupting the American market isn’t in their interest right now.
The big problem is the gross imbalance in U.S. international trade. In October we hit another all-time high with a trade deficit of $55.5 billion – $16.8 billion with China alone. Even though U.S. exports also set a record at $98.1 billion, it was not enough to offset our appetite for foreign oil and goods produced in China and elsewhere around the globe.
As huge and as ominous as it is, the trade deficit wasn’t even on the agenda for the two-day economic summit meeting held this past week. There are only so many things that can be top priority, and President Bush has chosen Social Security, with its huge unfunded liabilities and crumbling financial base, as his principal focus. And, of course, leaving the trade deficit off the agenda makes good sense for another reason. It is abundantly clear that economists have little to offer in terms of a solution for the trade deficit. Adding it to the agenda would only set off an episode of hand-wringing – and no real help in policy-making.
With both China and the United States attempting to keep the lid on potential conflicts over trade issues, the president will probably catch a break on the trade deficit. It will be at least six months before we know whether China’s export tax system was actually imposed and effective, and possibly another six before anything there would heat up to crisis temperature.
What will happen in the meantime? We should brace ourselves for a rerun of the 1980s, with China investing and buying up U.S. assets much like Japan did a quarter century ago – and undoubtedly making some of the same mistakes. China has built up enormous foreign exchange balances, especially in U.S. dollars, and large-scale investments will surely follow. We have already seen the beginnings of this in the purchase of IBM’s personal computer business by China’s Lenovo Group for $1.75 billion – making Lenovo the third-largest PC maker in the world.
We survived the onslaught of Japanese investment, and we will survive China’s buying urge, too. What our economy will look like in terms of job opportunities when it is all done, though, may not be to our liking.
James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101,” which appears monthly in The Snohomish County Business Journal.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
