How Asia’s economy is key for America

Economic growth and job creation will be key issues in the 2012 presidential campaign. With the European economy in the doldrums, only Asia is capable of spurring US economic growth. The recent visit of Xi Jinping – the likely future president of China – to the White House reinforces the narrative that US jobs are tightly linked to China.

If, on the one hand, employment in the United States has taken a hit because of increased competitiveness from Asia (as multinational companies locate overseas), on the other, closer ties with Asia also offer unparalleled opportunities for American firms to tap into ever growing markets.

In order to reignite economic growth, the US might want to reduce incentives for corporations to move manufacturing overseas and to strengthen the export base at home. But is this a real possibility?

Upon being elected, one of President Obama’s promises was to double the value of US exports within five years. Although there is a lot of talk about the global domination of “Made in China” products, America is actually on par as the world’s leading manufacturer. However, it definitely lags behind when it comes to its export ratio. According to the National Association of Manufacturers, the US ranks 13th among the 15th largest manufacturing countries based on the proportion of that manufacturing production that is exported.

Predictably, then, the current administration is betting on exports as a means to boost growth and jobs at home. In 2011, Congress approved new free trade agreements (FTA) with South Korea, Colombia and Panama (which had been in the works for a while). Furthermore, the American commitment to APEC was renewed through the Trans-Pacific Partnership (TPP) initiative. The growth potential of these FTAs is huge: according to the International Trade Commission, the one with South Korea alone should create up to 250,000 new jobs.

However, exports are not necessarily a win-win strategy. First of all, negotiating, ratifying and making FTAs binding takes months if not years. Secondly, an increase in exports does not always translate into more jobs. The high-tech manufacturing industry is a clear example of this. The United States is exporting a growing amount of high-tech goods and services to Asia (think Apple), yet this trend has been matched by an actual decrease in the number of industry jobs based in America.

A recent report by the National Science Foundation warns that, for the same reasons, America’s global leadership in science and technology and R&D is under threat. In the last decade, the United States has lost nearly three in ten high-tech manufacturing jobs to Asian countries, which are more ready to invest in knowledge-intensive industries.

What is at stake here is one of the core strengths of the US economy: its role as the world’s largest investor in science and research. America continues to be the primary innovator in the global economy, but its leadership is being eroded fast. It now has to fend off competition from all quarters – not only from South Korea and Taiwan, but also from technology hubs like Beijing and Shanghai in China and Bangalore, Delhi and Hyderabad in India. To stay ahead, the United States must not only craft a regulatory structure to protect its high-tech goods and continue investing in the sector; it must also train highly-skilled workers. 

When unveiling the new budget, President Obama made this very clear: “Employers today are looking for the most skilled, educated workers. I don’t want them to find them in India or China.” This statement came with a provision for $8 billion over three years to be poured into community colleges to equip manufacturing workers with the required technological skills.

The president, going along with the anti-China rhetoric increasingly popular in the USA, has been pointing the finger at Beijing. During Xi Jinping’s visit to Washington, trade-related tensions ran high. China’s heir-apparent was attacked for his country’s strategy of artificially depressing the renminbi and of promoting unfair trade practices, such as subsidizing state-owned enterprises.

Notwithstanding the confrontational rhetoric, progress is underway. The renminbi has risen around 12% over the last 18 months vis à vis the US dollar, giving Chinese households more buying power. Furthermore, the Trans Pacific Partnership initiative acts as an instrument to pressure China into reforming its trade policies.

The discussions underway via the TPP among 10 Asian-Pacific countries include schemes to reduce tariffs and non-tariff barriers on environmental and technological goods, to protect intellectual property rights and to put in place regulatory reform and trade facilitation initiatives. In the long run, the United States hopes that these measures, coupled with the further liberalization of export controls, will support job creation at home and help the American economy reap the benefits of Asia’s ceaseless growth.

For now, however, American high-tech manufacturing jobs are being shed, even as the industry continues to strive. In this election season, the resulting popular angst will likely fuel diverging narratives about the nature of the economic relationship with China that will pitch Republicans and Democrats against one another.