US-China Trapped In A Domestic Problem Blame Game

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Economic success has consistently been crucial to the attainment of international respect and power. Economic success has also improved domestic stability. Likewise, in the long term, successful economic development in one country should benefit other countries and create a sense of mutual benefit as has happened among Japan, the US, Europe, China, and most of the rest of the world.

But it also brings changes in relative power, dependencies, conflicts over resources, and other problems. This paper will focus on two ways in which development has exacerbated Sino-American tensions:

• In both the US and China, development has created domestic social stresses that leaders have found convenient to blame on the other country.
• In addition, it has created changes in international roles that neither country has handled well.

The consequence has been rising hostility rather than a focus on mutual benefit. These are far from the only reasons for rising Sino-American tensions, and they are not the only security problems caused by development, but they are important and neglected.

US blame of China for workforce evolution

Successful development means the US is experiencing a transition from a manufacturing workforce to a services workforce. The principal driver of that transition is productivity improvement, which enables more work to be done by fewer workers.

The rate of decline of manufacturing jobs has been very steady since 1947. Manufacturing jobs are disappearing the way agricultural jobs once disappeared and for the same reason. Just as large combines replaced armies of farmers in harvesting crops, now automation means that far more cars can be manufactured by far fewer employees.

Just as the agricultural workforce once transformed into a manufacturing workforce, now the manufacturing workforce is transforming inexorably into a services workforce.

This transition causes social stress that, if not managed through retraining and relocation and reassurance, can be politically disruptive. The US has recently experienced social dislocation and political stress, most notably a surge of populism, as this process has recently displaced several million workers who have not been adequately helped by their government.

US manufacturing employment as a proportion of total non-farm employment, 1947-2016, dropped from one-third to about 8%, according to the St. Louis Federal Reserve's FRED figures.

China managed a decline of nearly 45 million state enterprise jobs in the single decade between 1994 and 2003 by helping manufacturing workers move into the services sector and giving double pensions to the minority incapable of transferring. Most of those jobs were in the manufacturing sector and most workers had to move to non-manufacturing jobs.

But the much more gradual US transition has proved disruptive, bringing social dislocation and even a decline in support for democracy. The reason is that in the US, neither political party has smoothed the transition.

The Democrats depend on the manufacturing unions, so they cannot advocate policies that would help the workers out of manufacturing; instead, they speak fatuously of bringing manufacturing jobs back.

US President Joe Biden pickets with United Auto Workers union members in September 2023. Photo: Common Dreams

Similarly, the Republicans' primary constituency is wealthy groups who want smaller government and lower taxes, so they will not give the government the authority and budget to smooth the transition.

Both parties find it convenient instead to blame China, globalization, and neoliberalism for what is actually an inexorable domestic trend.

The macro-idea of a China shock that cost millions of jobs above what was happening from normal development conflicts with the evidence that the decline of manufacturing jobs was steady from 1947 to 2009. The numbers imply that either the jobs would have been“lost” in some other way or that there were offsetting developments.

More recent research shows that although the direct impact of trade with China costs US jobs, that trade also reduces the costs of intermediate goods used by US firms and as a result indirectly increases US jobs. Contrary to what most Washington politicians say, the net effect is an increase of US jobs.

Moreover, the opening of the Chinese market to US automobile manufacturers at the beginning of the new century saved General Motors from insolvency. Profits from China offset chronic GM losses in the US and EU and made it possible for GM to be rescued a few years later.