US President George W. Bush says China's policy of keeping its currency weak is giving that nation's exporters an unfair advantage that's costing the US jobs. The evidence suggests that China's government isn't to blame for the 2.6 million American factory job losses since Bush took office.
Most of China's US$125.2 billion in exports to the US last year came from US companies such as Dell Inc and Motorola Inc that produce there to take advantage of labor costs 26 times lower than at home. Chinese companies compete with US producers in less than 20 percent of the goods being exported. And the US industries most vulnerable to imports -- textiles and small electronics -- make up about 2 percent of the US economy, too small to account for the 34 months of factory job cuts.
"China has been made a scapegoat," said Randall Kroszner, who until August was a member of Bush's own Council of Economic Advisers. "There's been a lot of focus on China, but exchange rates have very little effect on US competition."
US efforts to pressure China to end an eight-year-old peg of the yuan to the dollar are driven more by politics than economics and wouldn't recover many lost jobs even if they succeeded, Kroszner, now an economics professor at the University of Chicago, said in an interview.
The attempt to change Chinese government policy, embraced by advocates from steelmaker Nucor Corp to Treasury Secretary John Snow to Senator Joseph Lieberman, a Democratic Party presidential candidate, poses a risk, said Greg Valliere, chief strategist at Schwab Capital Markets.
"If we overplay the issue, the Chinese could become intransigent, and we need the Chinese to lean on North Korea to end its nuclear program," Valliere said.
The US' failure to generate jobs even in the face of the fastest economic growth in four years is a result of gains in productivity, which mean companies can produce the same amount of output with fewer workers, economists said.
David Hale, former chief economist for Zurich Financial Services who now heads his own company in Chicago, said the main engine of China's exports is "an upsurge of foreign direct investment," not an undervalued currency. That "has significantly boosted China's productive capacity," he said.
China last year drew US$53 billion in direct investment from overseas, surpassing for the first time the US, which recorded about US$30 billion, according to the US Department of Commerce.
China's yuan has become a lightning rod for criticism from Bush as he tries to boost exports and create jobs.
Bush faces re-election next year as the first president since Herbert Hoover to have lost jobs on his watch.
US groups such as the National Association of Manufacturers, the largest industrial trade organization, say that by maintaining an undervalued currency China is handing its exporters a price advantage that has forced the US companies to slash payrolls.
The flow of US jobs to China relates mainly to the Asian nation's workforce rather than exchange rates, said Clyde Prestowitz, president of the Economic Strategy Institute in Washington.
The world's sixth-largest economy has 760 million workers, six times that of the US. The hourly pay for a Chinese manufacturing worker is US$0.61 rather than the US$16.14 paid in the US, according to a study by economists at the Federal Reserve Bank of Dallas.
That cheap and abundant labor has prompted US companies such as Dell and Caterpillar Inc to move some operations to China. Intel Corp, the world's biggest computer chipmaker, said in August it planned to invest US$375 million to build a second factory in China.
"You've got to be sure you're producing product in a low-cost country so that you can compete," Glen Barton, chief executive officer of Caterpillar, the world's largest maker of earthmoving equipment, told a group of investors recently.
Basing operations in China also means much of the country's exports are produced by non-Chinese companies.
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