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Little merit in disrupting US-China trade relations

Efficient production lines in the two countries have ensured millions of jobs, and affordable products

Alarm bells are ringing about President Donald Trump's angry pronouncements against China, calling the nation a "currency manipulator" and threatening tariffs on Chinese imports. So far, these claims have been backed with little calculation of costs or jobs gained or lost.
Trump highlights the lopsided trade imbalance between China and the US - a deficit of $338 billion. So China has more to lose, but until 2014 plowed their surpluses back into US government Treasury bonds and securities. US consumers could expect higher prices, and China could retaliate on US-made products and services and sell its $1 trillion-plus investments in US securities - although this would hurt China too, as any attempt to unload large amounts of US securities would immediately reduce the dollar's value.
Estimating the numbers of workers involved in US-China trade is a tricky task. Data from the World Bank surveys suggest, the labour content in each country's exports offers a rough estimate of 16.39 million Chinese workers engaged in exports to the US and 1.24 million American workers engaged in exports to China.
Besides imports, consumers can obtain foreign products through FDI. A Chinese buying a Buick is not buying a car made in the US, but one made by the Shanghai subsidiary established by General Motors in 1997. An American who purchases a small refrigerator at Walmart is likely buying it from Haier, a Chinese company whose US subsidiary, Haier America, Inc., produces refrigerators in South Carolina. Both products include parts imported from other firms along the supply chain, and this is among the many complications in understanding FDI data.
Chinese FDI in the US accelerated after 2010, according a 2016 report by the National Committee on US-China Relations and the Rhodium Group. By 2015, investment by Chinese companies in US operations had reached an annual level of $15.3 billion - $3.4 billion from Chinese government enterprises and $11.9 billion from presumably privately held Chinese companies.
The value of Chinese acquisitions of American firms was eight times the number of built-from-scratch investments, suggesting a Chinese strategy to gain technological and market knowledge. FDI from most emerging nations has a knowledge-seeking motivation.
Americans need not be alarmed for two reasons: The biggest Chinese investments are in innocuous sectors such as real estate, hospitality, and business services where proprietary technology is not an issue. The largest Chinese investment to date has been in pig farming. Even in sensitive sectors such as computer technology and life sciences, the White House-guided Committee on Foreign Investment has embargoed foreign investment in sectors deemed sensitive or if the intelligence services or Commerce Department indicate danger to competitiveness of American firms.
US firms, as far as FDI is concerned, have more to lose in the event of trade disputes. Chinese FDI in the US in 2015 amounted to $15.3 billion, but US investment in China was almost five times as big, at $74.6 billion. For 2015, there were 6,677 American company affiliates in China compared with 1,200 Chinese-owned companies in the US.
Many more FDI jobs are at stake in China - up to 1.6 million according to Chinese Ministry of Commerce - because of greater use of cheap labour. The Rhodium Group estimates the 1,200 or more Chinese affiliates in the US employ directly around 90,000 Americans. Alternative estimates, including direct as well as indirect employment, suggest between 317,730 and 357,000 US workers connected with Chinese FDI in the US. The US Commerce Department reports that up to 10 million US residents work for foreign companies directly and indirectly, and Chinese FDI represents only about 3.5 per cent of FDI in the US.
In sum, with total US employment at 122 million and Chinese employment at 775 million, bilateral-FDI represents a small, albeit significant fraction of overall jobs for either nation.
Adding up the numbers for exports as well as FDI between China and the US, the maximum number of jobs at risk in China is up to 18 million, and in the US it is less than 1.6 million.
Such estimates represent maximum impact on jobs in the worst-case scenarios - and short of a calamitous dispute between the countries, the worst is unlikely to happen. Still, the above estimates give an idea of the numbers of jobs at stake. The US is one of the few nations that could produce almost everything domestically that it now imports from China - with higher costs for households and hundreds of billions in transition costs for businesses.
While the Chinese may not be thrilled about entanglement with the US economy, both nations have a mutual self-interest. Together, they account for 40 percent of world GDP.
Participation in global trade has created employment for more than 100 million Chinese. The US gains from the relationship with up to 1.6 million jobs that depend on China, $295 billion annually in lower consumer prices, as well as investment in US securities and low interest rates.
Trump may be right in asserting that China has benefited more from the relationship than has the US. But international trade theory and practice never suggest consistent and perfect trade balances. The two great nations need each other. They can pursue a relationship that is "bipolar," fraught with anxiety, or they can continue historic cooperation and lead to develop the 21st-century global economy.
Farok J. Contractor is a professor in the Management and Global Business Department at Rutgers Business School. - Yale Global