Debunking two myths – “China stole American jobs” and “America built China.”

China succeeded by emulating the proven paths of other Asian Tigers, which relied on investment, manufacturing, and exports to build their nations.

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SOURCENationofChange

We live in a highly connected and interdependent world, where no country can achieve progress on its own. While developing countries rely on rich countries for technology, the rich countries depend on poorer nations for labor, natural resources, consumers, and bright immigrants. Nationalistic Republicans forget this symbiotic relationship, especially when it comes to China. The two enduring and endlessly repeated myths are that China is uniquely guilty of stealing American jobs and that America built China. Let’s quickly analyze the raw facts.

Loss of Manufacturing Jobs

First, the number of manufacturing jobs as a percentage of all jobs have been decreasing since the 1940s, as the chart below shows.

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 The inexorable decline in manufacturing was first due to automation from 1945-1975 and then due to additional pressure from outsourcing to developing nations. Thus, manufacturing’s share declined from 38% in the 1940s to 20% in 1980 when U.S. corporations started accelerating offshoring of low-end manufacturing such as those related to textiles, shoes, and toys. By the time China joined the WTO in 2001, U.S. manufacturing of employment had already been further halved to about 12%. Then over the next two decades, it declined by only an additional three percentage points. Even the U.S. government’s Bureau of Labor Statistics acknowledges that only one-fourth of jobs lost in the last two decades in the U.S. can be ascribed to China.

So, Why Does China Get all the Blame?

Simple. It’s because there was a vast consolidation of manufacturing in Asia. After China joined the WTO, many multinational corporations moved their factories from places like Taiwan, Malaysia, Vietnam, Indonesia, Thailand etc. into China, where labor was relatively much cheaper. It was simply a matter of cost-efficiency. Thus, while Americans used to see names of numerous countries on the imported products before, now they just saw “Made in China” dominate the labels. This made China look like a bigger problem. 

As economist Yukon Huang points out, Asia’s share of U.S. imports has remained pretty much the same. The only difference was the shuffling of factories within Asia. I created the chart below with data from U.S. government’s data about U.S. trade with Asia and U.S. total trade. The chart shows how Asia’s share of total U.S. imports has remained pretty much constant over the last two decades.

Chart

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Therefore, if we had kept importing from ten different Asian countries, nobody would be blaming China, and there won’t be sensational books and videos like Death by China. Or, look at it this way: If the labels on products said, “Made in Asia,” Americans wouldn’t have noticed much difference over the last two decades.

Did America Build China?

Another populist trope is that “We (America) built China!!!” It sounds great and nobody is going to argue if you’re talking to an American audience. The logic is that America’s foreign direct investments (FDI) and outsourcing created all those jobs and made China great again.

Here are three compelling facts that debunk this myth: 

  • America invested very little of its FDI in China. In fact, less than 2%.
  • On the flipside, U.S.A. accounted for only about 10% of all the FDI that flowed into China over the last 30 years.
  • FDI is a very small percentage of China’s GDP.

Consider that the U.S. spent about $5.4 TRILLION on FDI in other countries from 1990-2020. Guess how much of that went into China? About $260 billion or less than 5% of the total (source: U.S. Gov report). 

Table

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Notice that $260 billion over 30 years amounts to less than $10 billion a year. Peanuts, in the big picture. Furthermore, as seen in the table above, China invested $150 billion in the U.S. during the same period. So, the net flow was only $100 billion over 30 years. It’s a drop in the ocean.

Wait! How could that be? What about all the factories for Apple, Walmart, Nike, etc.? Well, here’s what happened: U.S. corporations simply outsourced all of them to other multinational corporations like Foxconn. Thus, the real investors in mainland China were Taiwan, Japan, South Korea, Singapore etc.

If you look at China’s total FDI inflows in the last 30 years, it amounts to an impressive $2.3 trillion. Thus, U.S.A.’s share of all Chinese FDI is only about 10%.

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 Third, while China has been the second largest recipient of FDI – the U.S. has been #1 for a long time – the FDI has averaged to only 3% of GDP over the last two decades. In the recent years, it has decreased to 1% as compared to China’s GDP. (Chart below from World Bank).

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Conclusion

China succeeded by emulating the proven paths of other Asian Tigers, which relied on investment, manufacturing, and exports to build their nations. However, this model has limitations and couldn’t have succeeded spectacularly without industrial socialism, as I explained in a previous article

Finally, China just didn’t take all the money. They have also invested $1.5 trillion in other countries. Thus, the money sloshes around and flows everywhere in this globalized world. It’s not a zero-sum game. Politicians don’t understand math and pundits prefer to ignore math.

Of course, China-bashers complain either way. If China receives investment from other countries, people will point to it as a sign of Chinese inferiority. If China invests in other countries, it is accused of taking over the world. And if China does neither, critics will bemoan how China is isolated from the world.

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