Radical Restructuring of Trade in Century’s First Decade Will Affect International Economic Powers in the Next
A far-reaching transformation of world trade took place during the first decade of the new millennium that will have a decisive impact on economic relationships among the principal economic powers and on the international economic system, according to a Manufacturers Alliance/MAPI report.
In A Decade of Transformation in World Trade (ER-733), Ernest H. Preeg, MAPI Senior Advisor for International Trade and Finance, highlights the reversal in the global share of trade between China and the United States, particularly in manufacturing.
The Chinese global share of manufactured exports soared from 7 percent in 2000 to 20 percent in 2010, while the U.S. share declined from 19 percent to 13 percent. The Japanese share dropped from 13 percent to 9 percent while the European Union share held steady at 20 percent.
A disturbing trend in the dominant manufacturing sector was the growth of trade imbalances. China’s surplus increased more than tenfold, from $50 billion in 2000 to $582 billion in 2010, in stark contrast to the United States deficit, which increased from $319 billion to $425 billion.
Preeg argues that the harm of the very large and growing U.S. trade deficit in manufactures is a net decline in U.S. production and relatively high-paying jobs.
“A $1 billion trade deficit, based on value-added per worker, is equated to a loss of 4,000 to 10,000 jobs,” Preeg said. “Thus, the $80 billion increase in the deficit in 2010 meant a loss of 320,000 to 800,000 jobs, and the projected $50 billion increase in the deficit in 2011 (from $425 billion to $475 billion) means an additional loss of 200,000 to 500,000 jobs.”
Preeg notes that on current policy course, global market shares of manufactured exports are headed by mid-decade toward 25 percent for China and 10 percent for the United States, with broad implications for the two global superpowers.
“There are four key issues that together will likely trigger basic changes in the current policy course: the adverse trade impact on the U.S. manufacturing industry, mercantilist exchange rate policies, the proliferation of discriminatory bilateral trade agreements, and the transition from the dollarized global economy,” Preeg said.
“Strong, forward-looking economic leadership will be required to avoid serious disruption in international trade and investment,” he added. “The need for systemic change is gaining momentum in the United States. Some policymakers are calling for action to curtail Chinese currency manipulation; the adverse impact on U.S. exports from free trade agreements excluding the U.S. is also receiving increased attention.”