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"Made In China" Is Good For U.S. Economy

In yesterday’s Washington Times, Brett Decker (editorial page editor)  reviews Patrick J. Buchanan’s book Suicide of a Super Power: Will America Survive to 2025? In his article titled Buchanan: Take the China Test, he rallies against free trade and China, with half truths and fear-mongering to appeal to individuals who see trade with China as a negative thing. Decker starts his story by narrating his visit to a car dealership, on the look-out for an American muscle car, but becomes distraught when he sees that “the domestic content was only 55%,” and that the transmission was manufactured in China. The author was also shocked to find that a box of nails, and even a box of fruit, was manufactured by the Chinese. As Decker puts it, “the reds had invaded my refrigerator.” He challenges readers to take the China Test: “Anytime you buy anything, flip it over and read the label to see if it was made in [China].” He concludes the paragraph by saying that “America is making less all the time”, which is simply not true. In fact, according to the Federal Reserve, manufacturing output has steadily increased since 1975, as this graph prepared by the Mercatus Center’s Veronique De Rugy shows: The perception of everything made in China comes from the fact that Americans don’t produce “stuff” and “trinkets” anymore. The United States manufacturing advantage comes from producing advanced and complex goods such as aircraft, semiconductors, pharmaceuticals, and industrial machinery. Americans are competitive in these goods because they require a highly specialized and educated labor force, something that is simply not present in China or indeed in many other countries. The Chinese advantage is the abundance of labor. Low-cost labor produces simple (even if necessary) things, at lower prices. It permits American consumers to buy lower priced goods that allow them to spend resources on the higher-end U.S. made goods. In his actual review of Patrick J. Buchanan’s book, Decker echoes Buchanan’s fear of seeing the total number of manufacturing jobs decrease since 2000. If Buchanan had investigated a little more, he would find that this trend has existed since at least 1975. Manufacturing has had a smaller share of the U.S. economy since that time, a fact that is ignored by Buchanan and Decker. Nothing in the book review mentions the rise in managerial, professional, technical, sales and office, and other service related employment, relative to total U.S. employment. Focusing on a declining 20.1 percent of U.S. employment, and ignoring the 79.1 percent represented by the service industry is lazy at best and dishonest at worst. Decker then makes the claim that “service jobs pay half as much on average as manufacturing jobs,” which is simply not true. Looking at the Bureau of Labor Statistics National Occupational Employment and Wage Estimates (May 2010) will reveal that generally service jobs are paid just as well, if not better, than many manufacturing jobs. The economy should be analyzed as a whole, since narrow sectors may lead to surprising and undesirable conclusions. Buchanan, along with his protectionist and isolationist cronies, has pointed to trade with China as a symptom of an unsustainable economy, and yet Americans benefit enormously from it. Many Chinese imports are actually industrial inputs necessary to produce goods and services domestically (47 percent of goods from China are industrial inputs). Many of the “made in China” products we see at big-box retailers are not produced in the United States simply because they are too labor-intensive to be made by American producers. Finally, this is not the first time Buchanan has made the claim that trade will make us poor and mark the end of the United States as we know it. In 1995, he made similar points about Japan. He has made similar points about NAFTA. And here he is again, this time rallying against China.