Navarro film “Death by China” offers distorted guide to U.S.-China trade policy
The film “Death by China” first appeared in a few select theaters five years ago. The “shock-u-mentary” on U.S. trade with China has taken on new relevance with the appointment of its creator, University of California-Irvine economics professor Peter Navarro, to be chair of President Trump’s newly created National Trade Council, and even more so as the president welcomes his Chinese counterpart Xi Jinping to Florida this week for a high-stakes meeting.
“Death by China” is as subtle as Navarro himself, which is to say, not at all. It is 80 minutes of talking heads, gruesome photos, and low-budget graphics, all in support of the thesis that imports from China are killing us, economically and literally. The message from beginning to end is that a flood of “illegally subsidized and dangerous” imports from China has devastated America’s manufacturing base and put millions of Americans out of work. A key to making American great again is to stop importing stuff made in China.
Trade with China is a serious subject. It raises important questions about the benefits of trade, the evolution of manufacturing, and geo-strategic relations in East Asia. The film “Death by China” is not a serious treatment of the subject, and its manifold exaggerations, misstatements, and omissions raise disquieting questions of their own about where President Trump’s trade policy towards China will lead us.
The biggest failing of the film is its gross exaggeration of the impact that trade with China has had on the U.S. economy, manufacturing, and workers, and the overwhelmingly negative spin it puts on it.
The date when everything started to go wrong, according to the movie, is China’s official entry into the World Trade Organization in December 2001. China’s accession was facilitated by the approval by Congress in May 2000 of Permanent Normal Trade Relations, which granted China’s exporters access to the U.S. market under similar conditions extended to the WTO’s other 150 members.
Under the accession agreement, no U.S. duties were actually lowered, since we had been granting China conditional NTR since the 1980s. What did change was China’s trade regime, which, according to a 2015 report from the U.S. Trade Representative, has reduced China’s average tariff rate on goods of greatest interest to U.S. industry from 25 percent before accession to 7 percent.
As “Death by China” notes, goods imported to the U.S. from China grew substantially after its entry into the WTO — more than four-fold from $102 billion in 2001 to $426 billion in 2012, when the movie was released. But U.S. goods exported to China in the same period grew more than five-fold, from $19 billion to $110 billion. Annual growth of U.S. exports to China in that period was 17.3 percent compared to 13.8 percent for imports from China.
Far from unleashing a “flood” of imports to the United States, the annual growth rate of China’s imports to the United States actually decelerated from an annual rate of 18.4 percent in the decade before China’s WTO accession. And in the four years since the film was released, 2012 to 2016, the annual rate of growth in imports from China has further declined to 2.1 percent.
None of this should be a surprise. China’s re-engagement in the global economy beginning in the 1980s is a one-time historical event and its entry into the WTO an inevitable milestone in the process. The deceleration in the growth of imports from China shows that it is finding its natural place in the global trading system.
Although we see Chinese-assembled products all around us in our homes and at the office, they remain a modest share of our total spending. Goods imported from China as a share of total U.S. personal income rose from 0.1 percent in the mid-1980s to 1.1 percent in 2001 to 3.1 percent in 2012. But since then the share has leveled off, actually dropping back to 2.9 percent in 2016. Is there anything wrong with the fact that Americans spend 3 percent of our income on products assembled by the one-fifth of mankind that lives in China?
Even that 3 percent is misleading because it includes a large amount of value added from other trading partners. The most well-known example is the iPhone. While stamped “Assembled in China,” the typical iPhone contains only a few dollars of value added from China. The rest is R&D and components originating in Japan, Sound Korea, Germany, the United States, and other countries
The rising value of goods imported from China has displaced the production of some products that were made in the United State, but those imports have primarily replaced products that had been previously imported from other countries.
Consider the nearby chart that shows imported goods from China as a percent of total U.S. imports. The share has indeed climbed in the past 30 years, from 1 percent in the mid-1980s to 21 percent in 2016. But note the offsetting decline in the share of imports from seven other major U.S. trading partners in East Asia (Hong Kong, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand). During the past three decades, the combined share of imports from China and the other nations has been remarkably stable.
This reflects the emergence of China as the final assembly platform in the Pacific Rim supply chain. Electronics and other goods that used to be exported from the other East Asian countries directly to the United States are now made in China or make a final stop in China for assembly before heading across the Pacific in a container ship bound for Long Beach. Because of our simplistic trade accounting, the full value of the imports are credited to China, artificially inflating our bilateral goods deficit with China and fueling the hyperbole of Navarro and other merchants of fear.
Based on the false assumption of a “flood” of Chinese imports to the United States, “Death by China” makes the unsupported leap that those imports have devastated American manufacturing. In case you don’t get the connection, it features computer generated graphics that show bombers flying from China across the Pacific and carpet bombing U.S. factories.
Back in reality, the United States remains a manufacturing powerhouse. In 2016, U.S. workers in U.S. factories on U.S. soil produced a record $2.17 trillion in manufacturing value added. In the 2001–2012 timeframe covered in “Death by China,” when U.S. factories were supposedly being laid waste by Chinese imports, real manufacturing value added in the United States rose by $290 billion, or almost 20 percent. Real output did fall in factories making furniture, paper products, textiles, apparel, and plastic and rubber products, while output rose far more in factories making computer and electronic products, motor vehicles and parts, chemical products, and machinery.
This is how international trade is supposed to work. It allows Americans to make more of what we are best at, in this case more capital intensive, sophisticated products, while shifting resources away from making more labor intensive products that we are not so competitive at making, such as clothing and furniture. This has been the trend in U.S. industry for decades, long before China re-emerged as a trading nation.
While U.S. manufacturing output remains at record levels, a significant number of U.S. manufacturing jobs have been displaced by imports from China. A widely discussed 2016 paper by Autor, Dorn, and Hanson calculated that the so-called “China shock” displaced close to 1 million U.S. manufacturing workers between 1999 and 2011 and that those workers and their communities have been slow to recover from the loss. Spread over more than a decade, the employment impact of Chinese imports represents the loss of fewer than 100,000 manufacturing jobs a year. That may seem a large number in isolation, but it is quite small when compared to the 2.5 million jobs that are eliminated in our economy each month and another 2.5 million-plus that are created. Imports from China are responsible for a small fraction of the total job churn in the U.S. economy.
When we look at the more than 5 million manufacturing jobs that were lost from 2000 to 2010, Chinese imports were not the most important factor. Productivity gains fueled by automation have had a far larger impact on manufacturing employment than imports, whether from China or anywhere else. A 2015 study from the Center for Business and Economic Research at Ball State University found that automation accounted for 85 percent of the net loss in manufacturing jobs during the 2000–2010 period and import competition 13 percent.
“Death by China” seeks to further stigmatize imports from China by repeatedly referring to them as “illegally subsidized” and “dangerous.” There is a grain of truth here, but neither are reasons to fundamentally alter our trade relationship with China. U.S. trade law provides a wide array of tools, including countervailing duties (CVDs), to restrict importation of Chinese goods that receive production subsidies. U.S. industry has made liberal use of CVDs and anti-dumping orders to curtail certain Chinese imports. When critics of China trade talk about illegally subsidized imports, they more often mean “competitively priced.”
As for “dangerous,” the film all but warns that your family will be poisoned or maimed from buying just about anything from China. In fact, U.S. law subjects imported products from China to exactly the same health and safety standards that are applied to any other imports or to like products made domestically. Certain shipments of toys, pet food, and other imports from China have been found to violate U.S. safety standards and were removed from U.S. stores amid much publicity. The vast majority of imports from China have proven to be perfectly safe for American consumers, and U.S. retailers have a strong incentive not to sell dangerous products wherever they are sourced.
The film also raises the old canard of slave or prison labor being used to make Chinese products. Again, U.S. trade law authorizes the banning of such products from importation to the United States. This is not to say that products made by prison labor haven’t made their way into international trade, but the vast majority of products we buy from China are made by Chinese workers who are living quite normal daily lives and being paid normal wages for a rising middle income country. “Death by China” leaves the impression that China is one vast prison, which contradicts the reality experienced by 1.3 billion Chinese or anyone who has visited the country in the past two decades.
Then again, “Death by China” is not a film designed to deepen or broaden our understanding of trade with China. It is propaganda that ignores the essential realities of our maturing trade relationship with the world’s most populous nation. If the Trump administration accepts the distorted worldview put forward by this film and its author, the results cannot be good for citizens of either country.
