Understanding China’s Impact on American Consumers

American jobs have moved to China, but consumers benefit from lower costs.

In this Jan. 19, 2011 file photo, President Barack Obama listens as China's President Hu Jintao speaks during a state arrival on the South Lawn of the White House in Washington.
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In recent weeks, politicians and pundits have held China responsible for all the problems plaguing the U.S. economy. They argue that the Chinese economy has grown strong at the expense of the United States.

But according to experts, there is no direct correlation between China's success and the difficulties in the United States. It's true: Some aspects of China's rise—primarily the availability of cheap labor and the country's devalued currency—have made things more challenging for the United States. But a number of Chinese economic practices have also benefitted American consumers.

In addition, some experts are dismissive of the difference between the presidential candidates' views on China. Robert Capp, president of Robert Capp and Associates, a firm that advises American companies doing business in China, and Weyman Gong, chief investment strategist at Signature, a wealth management firm in Virginia, say the candidates are both using China to score political points. Mitt Romney claims China devalues its currency, which makes Chinese goods cheaper to Americans while adding billions to the U.S. trade deficit. President Barack Obama accuses Romney of personally investing in U.S. companies that sent manufacturing jobs to Shanghai. However, because the relationship between the United States and China is so interdependent, little is expected to change after November 6.

The two candidates disagree now, but if either took office, they would act similarly, says Gong. "Very little will change," he says.

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Benefits from China. Capp says low prices are the greatest benefit American consumers receive from China. "China produces products that Americans consume at large quantities, at prices lower than Americans would have to pay if the product was made elsewhere," he says. "Even before the financial crash crippled the economy, American consumers' cost of living was moderated by the lowering of retail prices of goods produced in China."

Gong says there is a misconception that the money spent on these products benefits China. Instead, the money goes to companies using Chinese labor for production.

Take Apple, for instance. Many have criticized the company for manufacturing its products in China. But only small portions of profits go back to Chinese companies. "Apple and Apple employees are making the big chunk of the money," Gong says. "The impact on China is pretty small."

Gong adds that China's growing middle class benefits the American manufacturing sector, as well as American companies. He says China is turning into a nation of consumers who have a strong appetite for American-made products. "China has become a larger part of the export market for the United States," Gong says. "As their [standard of living] comes up, they are going to buy more products made in the United States, as well as more iPads."

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The drawbacks. The United States lost approximately 2.7 million jobs to China from 2001 to 2011, according to an August 2012 report from the left-leaning Economic Policy Institute. Of those jobs, nearly 77 percent were in the manufacturing sector.

The report also found that the job losses disproportionately affected workers without a high school degree, who comprise 70 percent of the workforce.

Capp says these job losses were inevitable after China entered the World Trade Organization in 2001. China agreed to open its labor market to the West in exchange for entry into the WTO. After that, "investment began to flow into China in the form of manufacturing," Capp says.

Misunderstanding the United States and China's relationship. According to Capp, many Americans don't understand how the Chinese manufacturing industry functions. Again, take the iPad as an example. Many of the parts aren't made in China—only the final assembly takes place on Chinese soil.

Signature's Gong says Americans have a false idea about how much of their income is being spent on products that come from China. According to a 2011 report from the Federal Reserve of San Francisco, products made in China only for 2.7 percent of American consumption expenditures. "Most Americans spend most of our money on services like healthcare, education, and transportation, all of which [are] made in the United States," he says.



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