Rising US Trade Deficit Will Cause Job Loss of 125,000-250,000

Industry group MAPI report highlights the massive growth in the U.S. deficit over the past three years and its impact on jobs.

The U.S. trade deficit in manufactures and the Chinese surplus both continued to rise in the third quarter of 2012 compared with 2011, but at sharply different paces compared with the first half of the year, as noted in a new Manufacturers Alliance for Productivity and Innovation (MAPI) report.

In MAPI’s new study, Ernest H. Preeg, MAPI senior advisor for International Trade and Finance, highlights that the U.S. global trade deficit in manufactures rose by 6%, or by $8 billion, in the third quarter of 2012 compared with 2011, while the Chinese surplus increased by 4%, or by $7 billion.

As for the lopsided bilateral trade in manufactures, U.S. imports from China were more than six times larger than U.S. exports to China in the third quarter, with U.S. exports actually down by 1% compared with 2011, while imports were up by 5%.

For the first three quarters in 2012, the U.S. deficit rose by 7%, or by $23 billion, while the Chinese surplus was up 16%, or by $74 billion.

“The striking distinction between the two growth paths is that while the U.S. deficit grew at a relatively steady pace of 6-7%, the Chinese surplus soared by 24% in the first half of the year before dropping to 4% in the third quarter,” Preeg said.

“The reduced growth in the Chinese surplus reflects, in part, the very slow growth or recession in the EU and Japan, and its dampening effect on Chinese exports. Adjustments in Asian currencies to the renminbi to remain competitive with China could also be reducing trade imbalances in the region,”Preeg added.

Manufactured goods constitute the dominant sector of trade, accounting for about 95% of Chinese and about 75% of U.S. merchandise exports. The sector is also central to technological innovation, as two-thirds of U.S. civilian research and development and new patents derive from the manufacturing sector.

Preeg highlights the massive growth in the U.S. deficit over the past three years and its impact on jobs. He estimates that the $169 billion increase in the deficit since 2009, based on average value-added per worker, equates to a loss of 700,000 to 1.4 million manufacturing jobs, or almost 10% of employment in the sector. For 2012, the job loss is projected to be 125,000 to 250,000.

The report emphasizes that the outcome of these growing trade imbalances is highly uncertain, with much depending on the course of the global economy. Another global recession, such as that which occurred in 2009, could result in a sharp decline in world trade.

“In any event,” Preeg writes, “the United States is currently more vulnerable to a continued increase in its trade deficit in manufactures as an economy more open to imports, and with a strong currency that inhibits exports.” 

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