by Dick Morris
The president won’t crack down on China and Congress won’t act either. While the Democrats say they fight for the working person, they don’t utter a peep about this gigantic global fraud that is draining the good paying manufacturing jobs out of the country. Big business and the banks don’t care about the job loss. China is a convenient, ready, and cheap place for American companies to outsource their production, cutting back jobs in the United States, but increasing their corporate profits. While the Democrats do nothing to stop China’s games, they rant and rave about corporate outsourcing and “sending jobs overseas.”
Before 2001, when we let China into the WTO, its trade with the United States was relatively small. We sold them about as much as they sold us. Back then, the main complaint of American businesses and workers was the competition of Japan. But Japan fought fair, outclassing us by making better, smaller, and cheaper products. China gets its edge by stealing our technology and manipulating its currency to make its products artificially cheaper. Look at how our trade deficit with China jumped in 2002. Since then, it has quadrupled.
US Trade Deficit with China
1994
$39 billion
1995
$33 billion
1996
$39 billion
1997
$50 billion
1998
$56 billion
1999
$68 billion
2000
$83 billion
2001
$83 billion—China joins WTO
2002
$103 billion
2003
$124 billion
2004
$162 billion
2005
$202 billion
2006
$234 billion
2007
$258 billion
2008
$268 billion
2009
$229 billion—Obama starts
2010
$273 billion
2011
$295 billion
2012
$315 billion
2013
$318 billion
2014
$343 billion
2015
$367 billion
Once China entered the WTO in 2001, it took advantage of the lower tariffs to undercut American manufacturers all around the world, causing huge trade deficits.
Although China buys only 7% of our exports, it sells us 20% of our imports and accounts for half of our total trade deficit with the entire world.4 The job loss to China as a result of the trade deficit has been horrific. Since China joined the WTO in 2001, we have lost 2.4 million jobs to Chinese exports.5 Some experts have tried to belittle the loss of jobs. They say that other factors like automation, environmental regulation, fuel costs, and competition from other countries are more responsible for our manufacturing job losses. But a recent study by a group of economists who were initially skeptical of the impact of China on American jobs affirms that the total loss is, indeed, in the millions. To be exact, the study found that of the five million manufacturing jobs lost in the United States since China joined the WTO, between one and two million are attributable to Chinese imports.
While the economists participating in the study shared a bias toward free trade, the evidence soon made it apparent that the job loss to China was real. “The ‘aha’ moment,” said Massachusetts Institute of Technology economist David Autor, “was when we traced through the industries in which China had surging exports to the local addresses of their U.S. competitors and saw the powerful correspondence between where China had surged and where U.S. manufacturing employment had collapsed.”6
Bloomberg reported that Justin Pierce of the Federal Reserve and Peter Schott of Yale University found in April 2015 “that the biggest U.S. manufacturing employment declines and largest surges in imports were in products for which China permanently locked in the greatest reductions in tariffs as part of its entry to the WTO. Industries such as apparel, leather goods, plastic plumbing fixtures and surgical and medical equipment sustained substantial hits.”7 Schott said the changes since China entered the WTO were the “smoking gun” proving that Beijing’s exports were responsible for our job loss.8
More than any other candidate, Donald Trump has singled out China for blame for US job loss. “We have been too afraid to protect and advance American interests and to challenge China to live up to its obligations,” he said. “We need smart negotiators who will serve the interests of American workers—not Wall Street insiders that want to move U.S. manufacturing and investment offshore.”
China manipulates its currency by using Chinese yuan to purchase American-dollar-denominated Treasury bills at a frantic pace. By buying dollars and paying for them in yuan, they keep the price of the dollar artificially high and the price of the yuan correspondingly low, making Chinese products less expensive in the United States and American goods more costly in China.
Chinese currency manipulation really got started in 2005 when its currency traded at 8.2 yuan to the each dollar. At the end of Bush’s term, it had dropped to 7.6 to the dollar. But during Obama’s first term and Hillary’s tenure as secretary of state, it really crashed. It was down to 6.2 by the time Hillary left office in 2013. Since then, it has remained about the same. All told, the yuan has lost about one-quarter of its value since 2005. And that means that Chinese products in the United States cost one-quarter more than they should. If we ended Chinese currency manipulation, the effect on our economy would be huge. The Alliance for American Manufacturing, a labor-management partnership, says that a 28.3% increase in the value of the yuan would create two and a quarter million US jobs and cut the trade deficit by $190.5 billion.9
Why does the United States let China get away with its currency manipulation? American politicians and Treasury officials claim that they are reluctant to rein in China’s purchases of American Treasury notes since, in effect, China is lending us money with each purchase, relieving our banks and citizens of the necessity of lending their own money to our government to cover its deficit. (And making it less necessary for the Fed to monetize our deficit by printing currency to cover it.) But that reason is obviously phony. If China stopped “lending us money” by ceasing to buy our Treasury bills, its currency would become stronger and its goods less attractive to American customers, causing a reversal of the jobs outflow from our country. We would prosper as a result, reducing our deficit dramatically. Even if China immediately stopped buying our Treasury bills, the effect would be minor. The Federal Reserve Board is, by far, the biggest lender to our government, lending us the money it creates to pay off our debts. Undesirable as a long-term policy, this “monetization” of the debt has not set off the feared inflation. In fact, as China has oscillated its level of purchase of US securities, the markets have scarcely noticed.
While China’s trade in dollars is opaque to say the least, there is evidence that China dumped about $94 billion in US securities in August 2015, bringing its holdings down to $1.3 trillion. And the world didn’t fall apart. The Fed just cranked up the old printing press once more. Nobody much noticed.10 Why doesn’t the WTO crack down on China’s cheating? The rules of the World Trade Organization are biased in China’s favor. The rules of the WTO do not even address currency manipulation. While the WTO holds down tariffs, it does nothing about artificially holding down the value of a nation’s currency to gain competitive advantage.
A tariff, of course, is a tax imposed on imports to make them more expensive for consumers to buy. Tariffs are a no-no. The entire thrust of global economics in the years since World War II has been to hold them down and, eventually, to eliminate them because they give one country an unfair competitive edge against another. But currency manipulation does the exact same thing. Not by taxing imports from the other country to make them more expensive, but by weakening a country’s currency to make their exports to other countries cheaper.
If the World Trade Organizati
on has a blind spot where currency manipulation is concerned, the International Monetary Fund (IMF) does not. The IMF forbids currency manipulation but, unfortunately, does not have adequate enforcement power. The WTO, which has the power to stop currency juggling, won’t use it. Of course, if Obama—or the next president—wanted to, he or she could force China to abandon its unfair manipulation. The first step would be for the White House to label China as a currency manipulator and then invoke sanctions on Chinese exports to the United States to force Beijing to reverse its policy. China would, doubtless, crack down on American exports to China in retaliation, but since they sell us four times as much as we sell them, that’s not a sanction that is likely to bring us to our knees.
University of Maryland economist Peter Morici suggests that the United States impose a tax on Chinese imports equal to the extent of its currency manipulation, rising or falling as China pushes its currency value down or lets it float up to the market rate.
China Buys Our Politicians
The real reason our White House—and Hillary’s State Department—did not and will not crack down on China is that Beijing has its tentacles deep into the Clintons. China hired Patton Boggs, a top US lobbying firm, for a fee of $35,000 per month, to fight against curbs on Chinese currency manipulation. Reuters reported that “the Chinese hire top-notch lobbying firms whose ranks are filled with well-connected former U.S. and Canadian officials [and] buy TV advertisements to buff their image.”11
While US law bars candidates from taking campaign contributions from foreigners, a ton of money from China has found its way into the Clinton Foundation, which funds Hillary’s staff and travel needs. One donor, Rilin Enterprises, pledged $2 million in 2013 to the foundation’s endowment. While allegedly a private company owned by Chinese billionaire Wang Wenliang, it has strong links to the government. Jim Mann has written several books on China’s relationship with the United States and points out that the company was one of the contractors that built Beijing’s embassy in Washington. Mann points out that the Chinese government was especially careful in choosing Rilin to build the embassy because of its close ties to the company. “So you want to have the closest security and intelligence connections with and approval of the person or company that’s going to build your embassy,” Mann writes.12 Rilin also keeps its US contacts up to date, spending $1.4 million since 2012 to lobby Congress and the State Department.13 And remember who was secretary of state.
The Clintons began raking in money from China in 2008, a few days after Hillary was nominated to be secretary of state. Bill hosted a special meeting of the Clinton Global Initiative called CGI Asia. The keynote speaker was Chinese Foreign Minister Yang Jiechi, who is particularly famous for saying that the Chinese people do not consider the Dalai Lama to be a “religious leader.” He described the Dalai Lama as, instead, “the mastermind behind [Tibet] separatist sabotage” and the “personification of evil and deception,” whose efforts are “doomed to failure.” Since then, the Clintons and their foundation have gotten millions from Chinese sources in donations and speaking fees.
Other top American foreign policy experts and former diplomats also find fertile soil in dealings with China. Former Secretary of State Madeleine Albright currently serves as the chair of the Albright-Stonebridge firm. The late Sandy Berger, Clinton’s National Security Advisor and Hillary confidante, was her cochairman. Albright-Stonebridge offers its clients “the knowledge and on-the-ground resources to help businesses and organizations successfully navigate this often complex [Chinese] market. Our team in Beijing and Shanghai works to create allies within the Chinese system, through an approach that emphasizes systematic engagement with agencies and nongovernment stakeholders at the central, provincial, and local levels. We offer the agility, insights, and practical support to overcome challenges and a strategic approach to help you thrive for the long term.”14 In other words, the firm that includes Bill Clinton’s secretary of state and a key Hillary ally promises an inside track to Beijing’s wealth, a sure inducement to any politician to sell his soul to China.
As Democrats watch Hillary take money from Chinese interests to sell them out, they feel abused and spurned, betrayed by those who claim to fight for them. With friends in high places, protective lobbyists hovering over Congress, and funds flowing to the secretary of state, China has been more than able to protect itself against charges of unfair trading practices. The American worker has been less fortunate. In fact, competition from China—through lower wages and currency manipulation—has introduced a third-world wage standard into American manufacturing. No longer do US workers compete with one another or even along union/nonunion lines. Rather they are being forced to a global, third-world level of compensation entirely incommensurate with middle class life in the United States. It’s time that US voters stand up and demand that their elected officials declare their independence from China and resolve to advance the needs and interests of American workers instead.
It’s Not Just China . . . It’s Mexico Too
It is not only China that is sucking jobs out from the United States. It is Mexico too. As a result of NAFTA, our balance of trade has changed drastically from a positive $2.2 billion in 1991 to a negative $59 billion in 2015!15
NAFTA, hailed as a job-creating agreement for American workers, has proven to be the exact opposite. Ross Perot predicted, when he ran for president against Bill Clinton and George H. W. Bush in 1992, that NAFTA would create “a giant sucking sound” as jobs fled over the border. Derided and even ridiculed at the time, Perot was right, and the statistics prove it!16
US Trade Balance with Mexico
1991
+$2.2 billion
1992
+$5.4 billion
1993
+$1.7 billion
NAFTA takes effect
1994
+$1.4 billion
1995
–$15.8 billion
1996
–$17.5 billion
1997
–$14.5 billion
1998
–$15.9 billion
1999
–$22.8 billion
2000
–$24.6 billion
2001
–$30.1 billion
2002
–$37.1 billion
2003
–$40.8 billion
2004
–$45.1 billion
2005
–$49.9 billion
2006
–$64.5 billion
2007
–$74.6 billion
2008
–$64.7 billion
2009
–$47.8 billion
2010
–$66.3 billion
2011
–$64.6 billion
2012
–$81.7 billion
2013
–$54.5 billion
2014
–$53.8 billion
2015
–$58.6 billion
Ever since NAFTA was passed, our trade deficit with Mexico has soared. The blame for NAFTA falls squarely on the shoulders of Bill and Hillary Clinton. It is the centerpiece of the new Left’s criticism of the Clintons and their wing of the Democratic Party. While its adoption and ratification by the Senate were heralded in the mainstream media as the signature achievements of the Clinton administration’s first year, it has been a disaster for working Americans. It led to deficits, deficits, and more deficits.
In a way, the deficit with Mexico is more problematic than the one with China. American businesses are flocking to Mexico as Chinese wages increase. The New York Times reported that businesses are turning to Mexico for outsourcing where once they chose China: “With labor costs rising rapidly in China, American manufacturers of all sizes are looking south to Mexico with what economists describe as an eagerness not seen since the early years of the North American Free Trade Agreement in the 1990s. . . . Mexican workers are increasingly in demand.”17 US trade with Mexico has
grown by 30% since 2010 and foreign direct investment is up to $35 billion. Mexico now makes 14% of the manufactured goods imported by the United States.
“When you have the wages in China doubling every few years, it changes the whole calculus,” said Christopher Wilson, an economics scholar at the Mexico Institute of the Woodrow Wilson International Center for Scholars in Washington. “Mexico has become the most competitive place to manufacture goods for the North American market, for sure, and it’s also become the most cost-competitive place to manufacture some goods for all over the world.”18
The list of fleeing US companies is long and painful: Caterpillar, Chrysler, Stanley Black & Decker, and Callaway Golf. Americans are hearing “that giant sucking sound” and resent it mightily. Again, Donald Trump was first on the case saying Mexico is “killing us on trade.”19
Workers at the Carrier Corporation, a big air-conditioner manufacturer who just announced plans to move to Mexico, would agree. Founded by Willis Carrier, who invented air conditioning, the formerly Indianapolis-based company stands to save $81 million a year by kicking 1,400 Americans out of their jobs. The company pays its Indiana workers $34 an hour, including benefits, but will have to pay its new Mexican employees only $6 an hour.20 Trump was quick to pounce: “I would go to Carrier and say, ‘You’re going to lay off 1,400 people. You’re going to make air conditioners in Mexico, and you’re trying to get them across our border with no tax.’ I’m going to tell them that we’re going to tax you when those air conditioners come. So stay where you are or build in the United States because we are killing ourselves with trade pacts that are no good for us and no good for our workers.”21