Thursday, February 9, 2006

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"the biggest winners are consumers in the United States"

This is David Barboza's conclusion in the New York Times after looking at shifts in the global supply chain:

Hundreds of workers at a sprawling Japanese-owned Hitachi factory here are fashioning plates of glass and aluminum into shiny computer disks, wrapping them in foil. The products are destined for the United States, where they will arrive like billions of other items, labeled "made in China."

But often these days, "made in China" is mostly made elsewhere by multinational companies in Japan, South Korea, Taiwan and the United States that are using China as the final assembly station in their vast global production networks.

Analysts say this evolving global supply chain, which usually tags goods at their final assembly stop, is increasingly distorting global trade figures and has the effect of turning China into a bigger trade threat than it may actually be. That kind of distortion is likely to appear again on Feb. 10, when the Commerce Department announces the American trade deficit with China. By many estimates, it swelled to a record $200 billion last year.

It may look as if China is getting the big payoff from trade. But over all, some of the biggest winners are consumers in the United States and other advanced economies who have benefited greatly as a result of the shift in the final production of toys, clothing, electronics and other goods from elsewhere in Asia to a cheaper China....

The real losers, it seems, are mostly low-wage workers elsewhere, like the ones at Hitachi who lost their jobs in Japan, along with workers in other parts of Asia who suffered as employers began relocating plants to China. Blue-collar workers in the United States have also lost out....

Foreign expertise has been critical as manufacturing supply chains become increasingly complex, involving countries' each producing components that are then shipped to China for assembly. Such a system can render global trade statistics misleading, and some experts say that a more apt label would be "assembled in China."

"The biggest beneficiary of all this is the United States," said Dong Tao, an economist at UBS in Hong Kong. "A Barbie doll costs $20, but China only gets about 35 cents of that."

Read the whole thing. One fact genuinely surprised me:
Asian exports to the United States have actually slipped over the last 15 years....

The migration has left footprints in trade statistics. In 1990, Japan was the United States' dominant trading partner in the Pacific, and Asia accounted for 38 percent of all American imports. Last year, China was the dominant Asian trader. Its trade with the United States has risen some 1,200 percent since 1990, even as the Asian share of American imports slipped to 36 percent.

What changed from 1990 to 2005 is that many goods became a lot cheaper as China took on a greater and greater role as the world's basic factory floor.

posted by Dan on 02.09.06 at 11:42 PM




Comments:

The impact of US imports from China had a much bigger impact on Mexico then anyone ever though NAFTA would have.

posted by: spencer on 02.09.06 at 11:42 PM [permalink]



Record trade deficit announced this morning.

Real wages sag for most Americans, but we can buy cheap stuff.

If the Democrats cannot take advantage of this they deserve to be a minority party for the next 1000 years.

posted by: save_the_rustbelt on 02.09.06 at 11:42 PM [permalink]



So how is the trade deficit explained (I've not the time to read the entire article now);

Note my new address (I've and all my fellows have been outsourced and we are presently positioning to retrain our replacements from Malaysia).

Have a nice day.

P. S. I agree with the rustbelt dude.

posted by: Dan on 02.09.06 at 11:42 PM [permalink]



If putting more money in my pocket means suffering some kind of hollow crisis like the so-called "trade deficit", then let's suffer that crisis every day. Lower manufacturing costs mean, in may cases, higher margins for American retailers. Also, rustbelt, please explain how foreign investment in the U.S. is somehow bad for us?

posted by: Don Mynack on 02.09.06 at 11:42 PM [permalink]



Question is how long this will last. The chinese are moving up the value chain quickly in manufacturing. Ditto for India in services. Will US residents end up making their living selling houses to each other ?

posted by: erg on 02.09.06 at 11:42 PM [permalink]



What portion of imports are now oil? That is likely the reason Asian imports have fallen.

While highly paid manufacturing employment here has been impacted, remarkably few blue-collar jobs are open to globalization. The largest impact will be on white-collar computer desk jobs.

posted by: Lord on 02.09.06 at 11:42 PM [permalink]



Lord is right.

Dan -- remember, imports to GDP are a bit higher now than in 1990, so a constant share of US imports implies that asian imports are rising relative to GDP. And that has come in the face of a terms of trade shift that has favors the US. One t-bill export buys more Asian goods than it ever has ...

I have not done the asian share of US exports back to 1990, but I suspect it has fallen too.

posted by: brad setser on 02.09.06 at 11:42 PM [permalink]



I thought the article was a bit confused. Is he trying to say that components are being made in Japan for assembly in China, or is he trying to say that Japanese companies have an ownership interest in the businesses that assemble in China?

In electronics, there are lots of components that are made in places like Malaysia, many of them no doubt going into products assembled in China.

posted by: David Foster on 02.09.06 at 11:42 PM [permalink]



All a bit reminiscent of the days when the Brits enjoyed cheap imports from the USA.

posted by: Econoclast on 02.09.06 at 11:42 PM [permalink]



I liked the next 2 lines from the article:

"Because so many different hands in different places touch a particular product, Mr. Dong said, you might as well throw away the trade figures.

"In a globalized world, bilateral trade figures are irrelevant," he argued. "The trade balance between the U.S. and China is as irrelevant as the trade balance between New York and Minnesota."

posted by: Robert Schwartz on 02.09.06 at 11:42 PM [permalink]



Don:

What we were told:

"Trade and foreign investment will make Americans more prosperous."

What really happened:

"Trade made some Americans much more prosperous and many Americans much less prosperous."

Big difference!

No end in sight.

posted by: save_the_rustbelt on 02.09.06 at 11:42 PM [permalink]



"In a globalized world, bilateral trade figures are irrelevant," he argued. "The trade balance between the U.S. and China is as irrelevant as the trade balance between New York and Minnesota."

Well, no. As an American (or Mexican ;)) you can freely migrate to Minnesota from New York, and vice-versa.

But

You cannot migrate to China freely (according to Peter Brimelow, in Alien Nation (1995) ... he called the embassies of the top five migrant sending countries ...Indian , you can migrate only if of Indian descent , China, no go at all!)

Even if you could, somehow I doubt that the average Jane or Joe could get a job in China, I suspect they have fairly high levels of 'xenophobia'. Probably not much in the was of antidiscrimination laws...but I am open to correction on this.

The problem with modern economics is that it ignores both politics and culture, and so economists end up saying ridiculous things like the statement above.

posted by: Mitchell Young on 02.09.06 at 11:42 PM [permalink]



A white male American former co-worker of a mine (he did software QA for a now defunct US company we both used to work for) just moved to Shanghai and has gotten a software job there. His wife is native Chinese (they met in the US), so maybe that's why he was allowed to go. Anyway, it's not *impossible* to go there, it seems.

posted by: Marc on 02.09.06 at 11:42 PM [permalink]



It's quite easy to live and work in China--Chinese citizenship is what is difficult to get (then again, who would want to be a citizen of that odious regime?)

posted by: John Kneeland on 02.09.06 at 11:42 PM [permalink]



"Because so many different hands in different places touch a particular product, Mr. Dong said, you might as well throw away the trade figures.."In a globalized world, bilateral trade figures are irrelevant," he argued. "The trade balance between the U.S. and China is as irrelevant as the trade balance between New York and Minnesota."

How about the trade balance between, say, three P&L business units within the same company: one that makes semiconductors, a second that assembles these semiconductors onto circuit boards, and a third that uses the circuit boards as components of finished products? Such "trade balances" are certainly tracked; first, because such tracking is necessary to evaluate the economic performance of the business units; second, because they must be properly eliminated to calculate the results for the overall corporation.

posted by: David Foster on 02.09.06 at 11:42 PM [permalink]



Sold out by the economists; according to his guy:

http://www.counterpunch.org/roberts02112006.html

How about it Dan?

posted by: Dan on 02.09.06 at 11:42 PM [permalink]






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