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  • Fact Checkers Get It Wrong on Jobs and China

    Who fact-checks the fact checkers?

    After the debate Monday night, CNN engaged in a fact-checking exercise. Many criticize these exercises for being more slanted and less accurate than what’s being fact-checked in the first place, and sure enough, this is what happened with China trade and jobs. CNN, for example, used numbers from the Economic Policy Institute (EPI) that are demonstrably wrong.

    EPI says the large U.S. trade deficit with China has cost more than 2 million American jobs in the last 10 years. There are so many ways in which this is wrong that it’s hard to know what the worst mistake is.

    One is that the number goes beyond hypothetical to fictional. EPI calculated its number as if all the production that took place in China could magically move back to the U.S. But if it could just move on back without any problem, why would it have left in the first place?

    There is a lot of production in China because goods can be made cheaply and well, making it possible for Americans (and others) to buy more. If computers and cell phones were assembled in the U.S. instead of China, prices would be much higher and far fewer people could afford them. Those jobs wouldn’t come back to the U.S.; they’d vanish in mid-air over the Pacific as the computer and cell phone industries crashed.

    Another huge mistake is the one year in the past decade that EPI thinks is a success. In that year, America’s trade deficit with China in goods fell by more than $40 billion. America’s overall trade deficit in goods fell by more than $300 billion! According to EPI’s “logic,” many jobs must have been created that year.

    If you’re wondering what year we’re talking about, it’s 2009. You may have a slightly different memory of 2009 than EPI does. You may remember unemployment jumping from 7.3 percent to 9.9 percent. The trade deficit fell and unemployment rose—exactly the opposite of what EPI assumes when it cranks out the false China figures CNN cited.

    That’s because the strength of our economy drives both the trade deficit and jobs. When our economy is strong, we have more jobs and a large trade deficit. When it’s weak, as in 2009, we have less of both.

    To be fair to CNN, a lot of people think that a trade deficit can cost jobs, even if they don’t go as far as EPI. New research from The Heritage Foundation shows that this is a mistake, explaining why and how imports actually help support jobs.

    In contrast to EPI, the Heritage logic is simple: Imports don’t just appear in our homes; they are unloaded, trucked, stored, and sold first. All those activities involve jobs that wouldn’t be there if imports were unavailable and the goods were too expensive for people to afford them. Moreover, these jobs exist right now—they don’t require some fictional transfer away from China.

    The Heritage study puts the number of jobs supported by imports of Chinese clothes and toys at more than 500,000. America’s trade relationship with China could definitely be better, but the idea that China trade hurts the U.S. is not supported by a proper look at the evidence. CNN’s urge to check facts is the right one. They should just go a little deeper.

    Posted in International [slideshow_deploy]

    3 Responses to Fact Checkers Get It Wrong on Jobs and China

    1. James says:

      You might want to look at the contributors to the deficit over the past 10 years. Most occurred in more advanced non-labor-intensive industries. In many cases it wasn't because China offered cheap labor but because China offered export subsidies like free land, free construction, and below market prices for materials and energy. America lost its clothing and toy manufacturing jobs 30 years ago, but it's hard to argue the loss of various machinery manufacturers to predatory trade practice over the past 10 years is a good thing. Saying China trade supports retail jobs is a pretty weak argument, those jobs tend to be lower skilled, have a far lower multiplier effect, and would be there anyway if the products were manufactured in America rather than China.

      Nevermind the value and jobs lost from the American economy due to rampant Chinese IP theft and counterfeiting.

      • Dan Poole says:

        Some of those jobs are lower-skilled and thus offer lower wages, but some of them are not. Trucking jobs created by free trade, for example, offer solid middle class wages and require specific skills. It would definitely be fascinating to see a study that examines the net impact of income from free trade (IE, is more income being generated then destroyed by free trade? And even if more income is being generated, is it concentrated over many jobs or over only a select few jobs?). So far, all the studies on free trade only focus on jobs. They don't focus on the "types" of jobs that are being created and destroyed. And even if free trade is generating more income, it doesn't matter if its all concentrated among, say, 10% of the jobs.

        I know this is an Occupy Wall Street kind of argument, but consider this: During the Antebellum days, the South was richer then the North. However, your average Northern worker was richer then your average Southern farmer. How is this possible? Because in the South, the wealth was so heavily concentrated among the aristocratic Plantation owners (who, by the way, owned pretty much all the slaves). The income inequality that the left screams about is bogus, but income inequality itself can be a bad thing if its like the South during the antebellum days.

        Free trade must benefit the American worker, the American consumer, and the American economy. Failure to do so reduces it to a dogmatic ideology. I, for one, would argue that free trade indeed benefits all three. As such, I think the Heritage Foundation has it right.

    2. Uncle Nephilim says:

      Comparing Heritage’s view to EPI’s shows a better understanding of global economics. I would like to expand a little by use of the oceans as a metaphor. If we say that wind symbolizes the spirit of work and wealth production, land as government and waves as measures of individual output, the picture is easier to grasp in all its components.
      Where there is heavy government involvement, like fjords, there isn’t much in the way of waves because the water is sheltered from the wind. Our government is like land masses, for a while there is lots of crashing around giving the appearance of lots of wealth, but in the upper latitudes of the southern hemisphere where there is very little to interfere with the winds, the waves are mighty and continuous.
      Your example is the computer/phone technical field, one of the very few fields that can be characterized as being in the southern latitudes. Trying to blame China as a loss of jobs is like a surfer complaining that there are waves in the wrong place and pointing to one other wave that another is enjoying and claiming its not fair.
      Lets use your example of saying that the US has exclusive franchise to manufacture smartphones and computers. I as a software engineer would likely be very restricted in the development of types of applications I could profitably write because only business and wealthy individuals could afford the computers making the market very small. With cheaper computers, the same software can be made cheaper as the market is larger and the costs distributed and much greater competition advancing the entire art. So while China has taken up those manufacturing jobs, as you say, the costs have dropped and the masses can enjoy the technology greatly increasing my market.
      But like the ocean, the environment is very dynamic. As there are more computers, there are more developers. As more developers come on line there is much greater diversity in applications that can pursue niches that could never have been economically explored. China has caused a boom in technical jobs here in the West.
      Another side to cheap technology is that it is easier each day to eliminate jobs as computers can perform tasks and processes so much more efficiently that fewer people are needed to do them. Software developers destroy jobs – that is what we are paid to do. On the other hand, because so many tasks are now trivialized, its possible to examine things and explore other areas that we couldn’t afford to do before. Does Chinese computer manufacturing along with Western software development get the credit for the explosion in other fields that can now cost effectively do things unimaginable before? How about life improvements made by cheaper tech in the health, energy, entertainment, knowledge and agricultural fields?
      So cheap computers made software jobs in the West, cheaper computers make it possible for Indians to develop software and so jobs are “lost” in the West to cheaper labor in India. But like waves, this won’t be firm either, very soon technology will be cheaper so that third worlders can reasonaby expect to have personal smart devices which means that other markets will blossom.

      EPI is trying to describe the ocean as if it is still life, having no idea how utterly huge the thing they are trying to caricature truly is.

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