Economic View: Imports Don't Deserve All That Blame

The New York Times
By EDMUND L. ANDREWS
December 7, 2003

Washington

PRESIDENT BUSH struck a blow for free trade last week by
repealing his own tariffs on imported steel. But make no
mistake about it: protectionist pressures still run high in
Washington.

Mr. Bush's decision to repeal the special steel tariffs
stemmed less from belief in open competition than from the
fact that the World Trade Organization had declared them
illegal and the European Union was about to retaliate with
$2.2 billion in tariffs on American exports.

Meanwhile, the Bush administration continues to insist that
China reduce its huge trade surplus with the United States.
Mr. Bush meets here on Tuesday with Wen Jiabao, China's
prime minister.

In recent weeks, the Commerce Department has moved to slap
import quotas on selected Chinese textiles and tariffs on
television sets, and it is considering restrictions on
bedroom furniture. At the same time, the government is
pressuring China to let its currency rise against the
dollar, a move that would make Chinese imports more
expensive in the United States.

Given all this saber-rattling, it is useful to take a
closer look at the actual impact that imports - especially
from China - have had on American manufacturing.

By any measure, imports of Chinese manufactured goods to
the United States have exploded, to an estimated $146
billion this year from $68 billion in 1998.

But imports explain only a small part of the woes of
American manufacturers. Manufacturing companies have
eliminated 2.7 million jobs, or about 16 percent of their
work force, since June 2000, according to Daniel J.
Meckstroth, chief economist at the Manufacturers Alliance,
a research group.

The real source of distress was domestic: a three-year
plunge in business investment and rapidly rising American
productivity that makes it possible to churn out more goods
with fewer people.

Imports of manufactured goods actually dropped to $900
billion in 2001 from $962 billion in 2000, and stood at
$923 billion in 2002, according to data from the
International Trade Commission. This year, as businesses
has finally started to spend again, imports may hit $970
billion - only marginally higher than three years earlier.

The long-term issue is productivity, which has been
climbing about 5 percent a year since the late 1990's and
surged at a stunning annualized rate of 9.4 percent in the
third quarter of this year.

Higher productivity is the main reason industrial
production has risen sharply over the last three decades
even as the number of industrial jobs has declined.

Edward Gresser, director of trade policy at the Progressive
Policy Institute, which is affiliated with the Democratic
Party, estimated that only 30 percent of the recent loss in
manufacturing jobs stemmed from foreign trade pressures,
while about 40 percent resulted from higher productivity
and 30 percent from the slow economy.

American manufacturing is far from dead. Though output
remains below the peaks reached in 2000, the long-term
trend has been and will continue to be up.

But not across the board. As has been the case for years,
American industry must focus on areas that capitalize on
new technology, designs and marketing flair. "We have to
create our own competitive advantage,'' Mr. Gresser said.
Lego building blocks, for example, are still produced in
Denmark and Italy still exports pricey shoes.

Mr. Meckstroth, speaking from an industry perspective, had
only a slightly different interpretation. "The problem, in
my opinion, is not imports,'' he said. "The problem is the
inability to export. We are buying goods from abroad,
giving the rest of the world our dollars, but these dollars
are not coming back to this country to buy our products.''

That leads directly to the main complaint from American
manufacturers about China: that the Chinese yuan and other
Asian currencies are drastically undervalued, giving
products from these nations a big cost advantage. But
regardless of exchange rates, Chinese labor and land costs
are a tiny fraction of those in the United States.

OF greater concern is the danger of a spiral in new trade
restrictions. It was no coincidence that the dollar dropped
noticeably against the euro after the administration
announced import quotas on Chinese knitted fabrics,
dressing gowns, robes and bras.

Analysts say investors fear the move could be the start of
a protectionist slide that would lead to higher prices and
slower growth. "The market realizes the net positive effect
of trade with China,'' said Lara Rhame, a senior economist
at Brown Brothers Harriman. "There is a concern that a
trade disruption will turn into a financial market
disruption.''