China's High-Tech Export Threatens U.S. Competitiveness

U.S. manufacturers are facing a threat to its "longstanding leadership in technological innovation" from China according to a new Manufacturers Alliance/MAPI report. Ernest H. Preeg, a senior fellow at the Alliance, analyzes Chinese trade during the first half of 2006 in his report entitled, "Trade and Productivity In China's Surging Trade Surplus Being Driven by High-Tech Manufactured Exports: Policy Consequences of the Growing Imbalance."

The report highlights some key issues:

  • In 2001, U.S. manufactured exports were more than double those of China, while in the first half of 2006 China passed the U.S, with $404 billion of manufactured exports compared to $367 billion for the U.S.
  • The Chinese trade surplus grew 5% in the first six months of this year, driven by manufactured exports, which were up by $86.6 billion, far outweighing increases in petroleum and industrial raw materials imports, up by $15.4 billion and $6.2 billion, respectively. If the current trend were to continue through the end of the calendar year, the surplus would be $158 billion, and the current account surplus would grow to $230 billion, or 9% of gross domestic product (GDP).
  • Chinese exports are now primarily high technology, most prominently in the information technology and telecommunications sector. The "export platform" issue has been greatly exaggerated, and Chinese value added for information technology exports will soon reach 70%, if it has not already done so.

"The Chinese economy would gain from a larger share of GDP directed to domestic spending on infrastructure, health, education, and personal consumption, although there would be a painful squeeze on the manufacturing sector, which is overly dependent on exports and already facing overcapacity in some sectors," Preeg concludes.

"For the U.S., an unpleasant squeeze on domestic consumption would be triggered by higher interest rates and a one-time uptick in inflation, while the manufacturing sector would benefit substantially from stronger export growth and higher priced import competition," he adds.

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