MBA 2004

According to the U.S. Department of Labor, 15 million jobs are permanently eliminated in the U.S. economy in a typical year (while even more jobs are being created). Spread out over 15 years, the job losses claimed by the EPI study would represent less than 1 percent of gross jobs losses during that period. New technologies, domestic competition and imports from other countries account for the other 99 percent.
Claims of net job losses also ignore the full and mostly beneficial impact of trade with China on job creation in the United States. The most visible impact comes, of course, from rising exports to China. The people of China have become America's fifth-largest export market, ahead of Germany and France, and by far the fastest- growing major market for U.S. exports. Since 2000, while U.S. exports to the rest of the world have been essentially flat, exports to China have doubled.
The United States does run a huge bilateral trade deficit with China, in the neighborhood of $160 billion last year, but the Chinese did not just stuff those dollars under a mattress. Those dollars came back to the United States, mostly to buy U.S. Treasury bills, which puts downward pressure on U.S. interest rates, delivering more affordable capital for businesses and lower mortgage payments for households.
Tens of millions of American households can use the savings from lower mortgage payments to buy lots of useful products made in China - clothing, shoes, toys, household electronics and other consumer goods aimed at discount shoppers. Last year, total imports from China reached nearly $200 billion, but at the same time Americans were producing $11.7 trillion in gross domestic product. There is nothing alarming in the fact that we spent less than 2 percent of our GDP last year on products made by the one-fifth of mankind that lives in China.
Trade with China delivers tangible benefits to tens of millions of Americans through lower interest rates on their loans and lower prices at the store. The number of Americans adversely affected by that trade is surprisingly small, limited to a few industrial sectors that have been in decline for decades.
If misunderstandings about trade with China lead to higher tariffs on Chinese imports, American companies, workers and families will be among the casualties.

Four of the five best years for U.S. GDP growth since 1980 have occurred in the same years when the U.S. current account deficit was growing most rapidly.Let’s first look at those years where the current account deficit shrank, which — according to conventional wisdom — should be a good thing. But the data says otherwise: In those years since 1980 when the current account deficit declined as a share of GDP, the economy grew by an annual average of only 1.9%.
In contrast, during those years in which the current account deficit grew moderately, real GDP grew at an annual average of 3.0%.
More astonishingly yet, in those years when the U.S. trade deficit "deteriorated” most rapidly, to borrow another popular characterization, real GDP grew by a robust annual average of 4.4%. In other words, growth in those years was more than twice as strong as in years when the deficit was "improving."
In seven of the eight years in which the U.S. current account deficit "improved," the U.S. unemployment rate went up.
Indeed, in seven of the eight years in which the U.S. current account deficit "improved," the U.S. unemployment rate went up. And in 13 of the 16 years in which the current account deficit "worsened," the unemployment rate went down.
In 2004, a rising U.S. current account deficit may have been bad news to headline writers — but it appears to have accompanied good news for the U.S. economy.
The year 2004 appears to fit the pattern comfortably. Through the first three quarters of the year — January through September 2004 — the U.S. current account deficit averaged 5.5% of GDP, a 0.6 percentage point increase compared to 2003.
That would place 2004 somewhere between a moderate and rapid growth of the current account deficit. Befitting the pattern, economic performance in 2004 was also moderate to robust.
Real GDP grew an average annual rate of 4.4% in 2004, while manufacturing output grew 4.9% during the year — and the unemployment rate dropped by 0.3 percentage points during the full year.