trade deficit and the large trade surpluses in China and other countries from whom it imports from. According to the U.S census bureau, the U.s trade deficit increased from $500 billion in 2010 to $558 billion in 2011. Two-third of the…
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This is because; absorption of U.s domestic demand for goods by exporters in China and Oil exporting countries has widely suppressed domestic job creation in the U.S. In 2011 and 2010, the increasing trade deficit with China led to 2.8 million jobs displacement in the U.S (Bordon 2011). Other factors that have led to the shrinking of the manufacturing sector include rising technological changes, which have increased labor productivity, forcing firms to hire few workers.
It is incorrect for the Business and Industry Council to blame imports alone for the international imbalance that have led to manufacturing crisis. Manufacturing crisis refers to the long-run trend of failing employment in the manufacturing sector in the United States. The macroeconomic policies that China has adopted of currency devaluation, increasing U.S dollar holding and, subsidies advancement to a range of industries are some of the major causes of the high trade deficit. By 2011, China had accumulated $3.26 trillion in foreign reserves in U.S treasuries. In Chinese auto-parts industry, both domestic and foreign owned plants have received $27.5 billion in government subsidies. In 2006, 58.2 per cent of China’s exports were from foreign firms operating in China. These firms are taking advantage of the subsidy policy and availability of cheap labor in China. China and other low wage rate countries enjoy availability of cheap labor, relative to their counterparts in the U.S and other developed countries. This is the area where they have a comparative advantage in manufacturing.
Global economists have argued that the main cause of the U.S. trade deficit is saving-investment disproportion as opposed to the common idea of Chinese Yuan devaluation (Hall and Lieberman 913). The economists propose that the country’s policy makers need to focus more on how to solve saving-investment imbalance. The main cause of the U.S. deficit is basically excess consumption and low saving rate among
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