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Don’t blame China for the trade deficit

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Scott Jagow: We’re waiting for last year’s final numbers, but the U.S. trade deficit with China is going to set a record. It’ll be over 250 billion dollars.

Commentator Robert Reich says China isn’t to blame and neither is the value of its currency. The blame lies with us.

Robert Reich: Don’t be surprised if in 2008 Congress threatens China with tariffs unless it does more to raise the value of its currency against the dollar and thereby, it is assumed, save good American jobs.

But the trade deficit numbers are deceptive. Much of what we buy from China today we used to buy from Japan, South Korea, and Taiwan, but now parts from these countries go to China for final assembly and because the goods are exported from China, they’re counted as Chinese. Subtract what’s merely assembled in China and more than half of China’s trade deficit disappears.

China is also sucking in vast quantities of cheap components from places in Southeast Asia where wages are lower than in China: Thailand, the Philippines, Indonesia, and Vietnam. So if China’s currency rises and as a result it’s more expensive to export stuff from there, where do you suppose both parts and assembly operations will move? To these lower-wage countries. Remember, we’re dealing with global companies seeking the lowest costs from anywhere around the world and they’re often headquartered here in the United States. Even if the trade deficit with China narrowed, America’s overall trade deficit with Asia could very likely grow.

The real problem is that America as a whole is living beyond its means. If anything, China has been an enabler, lending us heaps of money to continue our buying binge including homes with low-interest mortgages. That binge seems to be coming to a close. If American politicians succeed in forcing China to raise its currency another 10 or 20 percent, the binge will end faster than you can say the word “stagflation.”

But not all Americans feel they’ve been living beyond their means and here’s why Congress is feeling pressured to do something about the trade deficit with China: Adjusted for inflation, the median wage is below what it was in 2000. Almost all the benefits of American economic growth have been going to the very top. But China shouldn’t be a scapegoat for this, either.

Robert Reich was Labor Secretary under President Clinton. His new book is called “Supercapitalism.”

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