A recent Wall Street Journal excerpt from Yale Law Prof. Amy Chua's new book "Battle Hymn of the Tiger Mother" has garnered considerable attention during the past few weeks. The piece, titled, "Why Chinese Mothers are Superior," criticizes U.S. parenting styles and has offended many parents. But the extent to which this article has been discussed in the media reveals how deeply anxious Americans are; but more about tiger economies - most notably that of China - than about tiger mothers. Rough economic times in the United States has led to discussions about economic protectionism, but such talks might lead to foolish policy and may therefore severely damage a U.S. economy still reeling from the effects of the recession.
Chinese President Hu Jintao's recent White House visit has increased discussions about the future role of the United States in the world, particularly in light of China's impressive economic performance and the United States' comparably dismal growth. China became the second largest economy in the world this past summer, and many economists predict that it will even overtake the United States within the next several decades. Many Americans see this as evidence that China is eclipsing the United States as a world superpower. Such generalizations, however, are often full of holes and look at small details rather than the whole picture.
One concern that has captured much media attention is that the United States "doesn't make anything anymore." It is easy to come to this conclusion when "Made in China" stickers seem to be on every product we buy. But although manufacturing represents a smaller percentage of its economy, the United States still produces 21 percent of the world's goods - more than any other nation. In fact, the United States' share of global manufacturing has remained roughly the same for the past 30 years. Furthermore, many "foreign" products are actually made in America. Toyota, for example, makes its Camry, Camry Hybrid, Solara, Avalon and Venza models in Kentucky. "Buying American" seems to lose some of its patriotic meaning when one realizes that 95,000 Americans are employed by foreign-owned car companies.
As the recession and high unemployment continue to be constituents' top concerns, many politicians have begun considering protectionist policies. In September 2009, President Obama imposed a 35-percent tariff on tires imported from China on top of existing duties. Additionally, a "Buy American" clause, which stipulates that money must be spent on U.S. as opposed to foreign firms - was included in the federal stimulus bill. Most recently, Sen. Chuck Schumer (D-NY) has been promoting a policy to punish China for its devalued currency. Politicians from both sides are promoting this idea as if limiting the trade deficit with China would create economic growth instead of stifling it. Any Economics 101 student can tell you that trade is a good thing, and when two parties willingly agree to a transaction, both do it for their own individual benefit. Limiting trade would damage the American economy - not boost it. Most outsourced jobs have been shipped overseas because such positions were no longer as profitable in the United States as they would be elsewhere. The United States has outsourced millions of jobs overseas throughout history, but it has still historically retained low levels of unemployment because those outsourced jobs are often replaced with higher-paying, high-tech jobs.
Available data on the United States' trade deficit can also be misleading. Economists Yuqing Xing and Neal Detert tracked the production of the iPhone - an iconic symbol of a technological innovation that has kept the American economy one of the strongest in the world. The duo found that the iPhone actually added $1.9 billion to the United States' trade deficit with China in 2009. Components of the iPhone are made all over the world, but the phone itself was assembled in China and exported to the United States. This does not mean the United States has a net economic loss. Rather, the opposite is true. Apple still rakes in most of the profits because it owns the technology and the design for the iPhone. Chinese assembly accounts for only 3.6 percent of total cost. If the iPhone were made in the United States, Apple's profits would not be as steep because of the higher relative cost of U.S. labor. When considering trade deficits, China gets 100 percent of the credit for the manufacture of iPhone, even though Apple absorbed nearly all the profits.
Politicians must be careful when they consider increasing tariffs and creating more barriers to U.S. trade with China and other countries. The global economy, which is driven by the U.S. economic engine, is deeply intertwined and restriction would limit rather than promote American growth. A decrease in the number of U.S. manufacturing jobs does not mean the nation is losing productivity. After all, numbers show that a massive trade deficit do not necessarily illustrate drains on the nation's economy. Trade protectionism would damage the U.S. economy and decrease our ability to recover from the recession.
Nathan Jones' column appears Thursdays in The Cavalier Daily. He can be reached at n.jones@cavalierdaily.com.
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