In "The China Toll", the Economic Policy Institute (EPI) argues that the U.S. trade imbalance with China is the single biggest cause of job losses in the United States, asserting that 2.3 million U.S. jobs were lost between 2001 and 2007 as a direct result of this bilateral deficit. However, facts do not substantiate EPI’s assertions.

China May Have a Trade Surplus with the U.S. but Lost 10 Times as Many Manufacturing Jobs
The centerpiece of the EPI report is its assertion that the U.S. trade deficit with China is the cause of manufacturing job loss, but this unsupported charge doesn’t square with simple logic. In fact, despite its trade surplus, China shed 25 million manufacturing jobs between 1994 and 2004, a sum ten times the number of jobs lost in the United States in that period. Clearly, factors other than trade are driving the global reduction in manufacturing jobs.

U.S. Manufacturing Is Strong: The U.S. is the still the world’s workshop
In 2005, American factories contributed 21.1% of the world’s manufacturing output, only a slight decline from their 1993 share of 21.4%. The U.S. share of world manufacturing value added is twice that of China. And contrary to popular belief, American industrial production— 78% of which is in the manufacturing sector—actually rose by 57% between 1993 and 2007. Recent years have seen U.S. manufacturers set new records for output, revenues, profits, profit rates, and return on investment.

U.S. Manufacturing Jobs Impacted More by Productivity than Trade Deficit
U.S. manufacturing jobs losses have much less to do with imports than with huge improvements in labor productivity because of technological change, automation, and widespread adoption of information technology. These innovations have shifted the type of labor that defines the U.S. workforce because fewer manufacturing workers are needed.

• Productivity’s Impact Up Close: Improved productivity has resulted in U.S. manufacturers dramatically increasing output even as they have shed jobs. In the 1980s, for instance, General Motors needed 500,000 workers to make 5 million cars and trucks. Now, they can make that same number of vehicles with less than 150,000.

Trade Deficit with China Is Less and Less Significant
According to an analysis by the U.S.-China Business Council, China’s percentage of the total U.S. trade deficit climbed marginally from 24% in 1998 to 32% in 2007.  The portion of the U.S. global trade deficit accounted for by imbalances with Asia, including China, dropped from 75% to 49%. In that same period, the percentage of the U.S. deficit accounted for by non-Asian nations has increased sharply from 25% to 51%.

• EPI Study Neglects the Rapidly Rising Contribution of Petroleum Imports to the Trade Deficit: A U.S. Chamber analysis of Department of Commerce data indicates that imports of petroleum have accounted for 93% of the increase in the U.S. deficit since 2002. Excluding petroleum, the U.S. trade deficit has narrowed by 44% as a share of GDP since the end of 2004 and now stands at its lowest level since 1999.

China Is Now the Third Largest and Fastest Growing U.S. Export Market
Meanwhile, China has been an increasingly important export destination for U.S. goods over the past several years. China became the third-largest export market for the United States in 2007, just behind Canada and Mexico. Exports are currently providing a much-needed boost to the U.S. economy, and were responsible for almost half of U.S. GDP growth between April 2007 and March 2008.

EPI’s flawed study does not change the fact that China must reinvigorate its transition to a market economy. China must eliminate preferential industrial policies for its domestic industries, promote further transparency and domestic legal accountability, strengthen intellectual property protections, and continue to move to a market-based currency. China should also promote further trade liberalization within the Doha Development Round.

Yet there is no basis in fact to conclude that the U.S.-China trade relationship is a net negative for America or that China is the primary cause of job losses in some sectors.

//Updated 1:01pm. Here is a pdf of the post with data cites