I came upon an article at forbes.com by Baizhu Chen, a professor of clinical finance and business economics at USC Marshall School of Business. In his article Professor Chen boldly states that there is no relationship in this century more important to America than the one with China. Professor Chen almost got it right. While there is undoubtedly no relationship in this century more important to China than the one with America, the reverse is simply not true. Fully 21% of China’s exports end up in this country; without America China’s economy would be a shambles. On the other hand, less than 7% of America’s exports end up in China. China plays a very minor role as a market for American goods. However, Professor Chen does his best to convince Americans otherwise.
First, Professor Chen says that in recent years America’s exports to China have grown much faster than our imports from China. His evidence for this allegation is that American imports from China have grown about 9% a year since 2005 while exports to China increased at 17% annually. We must be making out like bandits. But wait, why does Professor Chen focus on percentages, rather than the trade amounts themselves? Could it be that if he had to tell his readers that America exported $104 billion to China last year but imported $399 billion they might pass out when they figured that amounted to an almost $300 billion trade deficit? Gee, I don’t know.
But not to worry. It turns out, according to Professor Chen, that entrepreneurial American firms are exporting nuts and Asian Carp to China. I’m sure that Americans will be overjoyed to learn that we can supply Chinese diners with nuts and Asian carp, but we will have to send quite a few carp on a slow boat to China before we can start chipping away at that $300 billion annual trade deficit.
In the article Professor Chen also wants you to know that it isn’t just our nuts and fish the Chinese want. In his article he states “[T]o many people’s surprise, the largest American export to China is computers and electronics.” Even more surprising might be how one-sided the trade in computers and electronics between the U.S. and China happens to be on an annual basis. In 2011, the U.S. exported $14 billion worth of computers to China, but imported more than $145 billion worth of computers from China. There is bilateral trade in computers between the U.S. and China, but it is amazingly one-sided. To put in context how insignificant our exports of computers to China are, last year the U.S. exported $28 billion worth of computers to Canada. Last time I checked, there are 34 million people living in the Great White North. So we exported $28 billion worth of computers to Canada, a nation of 34 million and $14 billion worth of computers to China, a nation with 1.3 billion people. Why am I not impressed? Also, since China exports more computers than any nation in the world by a factor of, oh I don’t know, ten, why would anyone possibly believe that U.S. computer makers are going to be making big inroads in the Chinese consumer computer market once one develops?
Ok, so the Chinese don’t really want too much of what we produce. Still, we are good for something. According to Professor Chen, “The Chinese also love our universities. In 2010 there were more than 128,000 students from China enrolled in our colleges and universities–an increase of 30% over the year before. Chinese are the largest international student population, making up approximately 18% of the international student body within the U.S. In a time when all states’ budgets are tight, consider this: If each foreign student pays $50,000 for tuition and room and board, Chinese students could contribute more than $6.4 billion to American higher education. This in turn, provides American universities with additional funding to carry out cutting-edge research and invest in innovation.”
The Chinese sure do love our universities. They love them so much that they crowd out actual American students who might want to attend a university in the state where they live. They also get degrees and training that they then take back to China to help Chinese firms become more competitive against American firms. Wow, what a great deal! Let’s get more Chinese students into our universities!
In passing, Professor Chen yet again states that it is perfectly normal that iPhones or Dell computers or Nike shoes are assembled in China as opposed to the U.S. I mean that is an immutable law right? Sort of like gravity. I am not sure if Professor Chen knows it or not, but Apple actually used to build computers in the same state where Professor Chen teaches his finance and business classes. Nike first produced shoes in this country. I will give Professor Chen the iPhone; it was never made in this country. But there is nothing inevitable about the fact that Nike shoes, Dell computers or iPhones are assembled in China. It is just about money. Apple hires Foxconn to assemble iPhones in China because they can realize a 55% markup whereas if they hired someone to assemble them here, they could only realize a 39% markup. Poor Apple! Never mind that many businesses survive on single digit markups. But the days of Chinese iPhones may be coming to an end if appalling events like raises for Foxconn workers keep occurring. I can’t wait for an iPhone made in Somalia if only Foxconn can sort out the Al-Shabaab and pirate issues.
I think Professor Chen is fooling himself. America doesn’t need China as much as China needs America. In the conclusion to his post, Professor Chen states “[C]hina is, in fact, the biggest opportunity presented to America in this century. Embrace it and we will reap benefits for years to come. Instead of exchanging words with China, we should be exchanging goods.” Professor Chen is correct in a sense. China is America’s biggest opportunity to continue to run $300 billion trade deficits for as far as the eye can see. We already exchange goods with China every year, it’s just that we import $4 worth of goods from China for every $1 worth of goods that they import. That type of balance of trade between two nations is unsustainable. And if anyone thinks that China’s leaders would even consider a trade relationship with the U.S. if those numbers were reversed, I’ve got some swamp land in Florida I’d like to sell you.