Initially, Japan was the regional export platform in East Asia. Over time, it has been augmented by the tiger economies (South Korea, China's Taiwan, Hong Kong and Singapore). In the past decade or so, China has become the final assembly for East Asia's extensive and deepening manufacturing supply chain.
Due to the transformation of the regional export platform, Americans no longer purchase final products from Japan or tiger economies. Today, the notebooks, mobile handsets and flat-screen TVs sold in the US are increasingly assembled in China with components from throughout the region.
During the past decade, the share of the U.S. trade deficit accounted for by China and East Asia has actually declined significantly, from 75 per cent to 49 per cent.
Rising imports from China have not displaced domestic U.S. production but imports from the newly industrialized East Asia.
In the past, Chinese manufacturers specialized in lower-tech, labor-intensive goods, in contrast to the higher-tech, capital-intensive goods that were the comparative advantage of U.S. manufacturers.
Due to Beijing's innovation policies, these low-productivity industries are now migrating to less prosperous provinces in China.
The primary reason for the decline of US manufacturing and job losses is not China, but America's strong productivity. Today, domestic manufacturers can produce much more with fewer workers because remaining manufacturing workers are much more productive.
In the late 19th century, increasing productivity allowed America to move from agriculture to manufacturing; in the late 20th century, it boosted the transition to the knowledge economy. China is not fighting the trend, but seeking to follow in the footprints.
Despite the global financial crisis, the U.S. productivity machine continues to climb higher. Overshadowed by the drumbeat of negative economic news, U.S. productivity actually grew 2.8 per cent in 2008, the fastest since 2003. That is a stunning achievement amidst a near-global recession, even if it also reflects front-loaded job cuts.
In the 1990s, the U.S. technology revolution contributed to global growth. In the near future, global recovery requires new sources of productivity, not scapegoats.
New growth drivers do not have to result in a win-lose competition between the U.S. and China. In fact, the proposed green recovery - that is, the development of clean technologies through new energy and environment policies - could build on closer and mutually beneficial U.S.-Chinese cooperation.
Due to the critical role of the U.S. economy in global growth, the debate is no longer just about U.S.-Chinese economic relations.
It was only after strong criticism from major U.S. trading partners and the concern of President Obama that the Senate recently softened (but declined to remove) a protectionist "buy American" provision in the stimulus bill. The controversy reflects the U.S. administration's ambivalence over free trade.
The World Trade Organization has called for a meeting to discuss a fast-rising wave of barriers to commerce, as governments scramble to safeguard key industries, often at their neighbors' expense.
Instead of a repeat of a 1930s-style tariff war, however, the new form of protectionism stems from efforts to protect national financial markets.
Ahead of her trip to Asia, Secretary of State Hillary Clinton said she would deliver a message about America's desire for "more rigorous and persistent commitment and engagement".
Imposing punitive, unilateral sanctions against imports from China because of its foreign currency regime would be a massive policy blunder. True engagement is now needed more than ever before.
The author is the Research Director of International Business at the India, China and America Institute.
(Source: China Daily)
