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Opinion

Made in China: US can't afford high cost of low-priced Christmas gifts

US retailers and economists hail the Christmas shopping season, but consumers' binging on holiday gifts will produce more red ink than growth and jobs. Their purchases are nearly all imports – most from China. For real recovery, the US must regain its manufacturing market share.

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Four years later, however, Washington approved China’s entry into the World Trade Organization. This decision handed China virtual immunity to US laws aimed at fighting unfair trade practices like intellectual property, and imports from the People’s Republic skyrocketed.

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More striking, imports from high- and low-cost countries alike also are rapidly gaining share of US markets in higher-value, capital- and technology-intensive industries alike. In these industries, labor costs mean much less and domestic American producers should therefore retain major advantages. But that hasn’t been the case. Imported goods are beating out US-made goods for American market share.

For more than 100 of these advanced industries studied for a decade by the US Business and Industry Council, the import share of the collective US market hit a record 38 percent in 2010 – up from 24 percent in 1997. And in many prized sectors, like semiconductors, machine tools, broadcast and wireless communications gear, inorganic chemicals, and power-generation equipment, imports have made even greater inroads.

These gains, at American producers' expense, show how dramatically US competitiveness in high-value manufacturing can be eroded by misguided trade deals, which have encouraged overseas production and job offshoring. Foreign government subsidies of foreign manufacturing give imports artificial but often decisive price advantages.

Regaining these lost shares of the US manufacturing market is essential not only for reviving the sector’s fortunes, but for turning today’s borrowing- and spending-fueled national economic slump into a healthy, production-led recovery. But success will require a thorough overhaul of US trade and other international economic policies. An obvious first step would be enacting into law of a bill already approved by the Senate to combat currency manipulation by China and other US trade competitors.

A new international economic policy should include several other key building blocks. The federal government needs stronger and broader “Buy American” provisions for its purchases, to maximize the expenditure of tax dollars on goods and services produced in the United States. The US should levy tariffs on countries whose value-added tax systems subsidize their exports to the US and impede American sales in their markets. Foreign investors in the United States should be required to use mainly American-made parts and components in their products and share their cutting-edge technologies with US partners. And the US must implement more sweeping import tariffs if these measures don’t promptly and significantly reduce US trade deficits.

These measures will certainly ruffle feathers abroad and create some short-term costs at home. But the US retains ample leverage to neutralize foreign market-rigging and ample capacity to overcome the inevitable domestic challenges. And without this fundamentally new approach to the global economy, Americans could become just as dependent on imports for the advanced manufacturing vital to their security and prosperity as they are for their holiday gift bargains.

Alan Tonelson is a research fellow at the US Business and Industry Council, which represents almost 2,000 domestic manufacturing companies. He is a contributor to the Council’s AmericanEconomicAlert.org website and the author of “The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade Are Sinking American Living Standards.”

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