China is being accused of causing U.S. unemployment by selling to American consumers goods that otherwise might be purchased from U.S. manufacturers, and doing so because of an unfairly weak exchange rate. If successful, pressure on China's exports would have profound implications for Hong Kong. But, what is the evidence?

Clearly, Chinese exports to the U.S. are strong and growing, and U.S. unemployment is higher than expected. One year ago, China for the first time contributed a larger share of U.S. imports than Japan. Shortly thereafter, the campaign to reduce China's share of the U.S. market began, first with warnings not to "unfairly" hold down the value of the renminbi vis-à-vis the US-dollar, and lately with threats to impose import duties on Chinese exports to America.

Aside from the historic shift between Japan and China in the U.S. import data, another factor was at play: recession. The first chart shows the typical pattern of job growth in the U.S. during and immediately after a recession. In the seven post-war recessions prior to 2000, the U.S. economy contracted year-on-year for at least three quarters. As growth turned negative, the economy stopped net job creation, with the deepest contraction (usually about 2 percent) coming in the typical recession's third quarter.

As the economy recovered, employment growth was delayed, until the fourth quarter after the on-set of recession, i.e., the second quarters of the recovery. There's nothing unusual about this, as employment is a lagging indicator: companies hire after an up-turn, not in anticipation of one. This time, however, things were different.

In the latest U.S. recession, shown in the second chart, the downturn was both shallower and shorter in duration. In fact, it was one of the shortest and mildest on record. Since recessions have the effect of forcing uncompetitive companies -- and people -- to find something else to do, a short, shallow recession does not adequately shake out the deadwood.

Further, this recession was driven by over-investment (remember the dot.bomb?), rather than the more common pattern where over-consumption leads to corrective interest rate hikes to curb inflation. Investment is far more persistent than consumption, and so there has been a correspondingly sluggish recovery.

On the job front, the first quarter in which the U.S. economy had fewer employed people than a year earlier (call it the "employment recession") did not occur this time until after the recession was over, in the first quarter of recovery. Moreover, recovery in job growth has been far slower than in the typical scenario shown in the first graph.

So, is this "jobless recovery" due to imports from China? It is true that U.S. imports from China were up 26 percent in the first eight months of this year, as compared to January-August 2002, and that total U.S. imports were up only 8.5 percent. But, that needs to be balanced against the change in U.S. exports to China, which were up 26.1 percent, while total imports were up just 2.4 percent.

Run those numbers again: U.S. imports from China expanded three times faster than total U.S. imports, but U.S. exports to China expanded nearly 11 times faster than total U.S. exports. China, it turns out, has been a key market for U.S. exports this year.

While a rise in imports may lead to job loss (or, to slower growth in job creation), a shift in purchasing from one foreign supplier to another would have no direct impact. The third chart shows a long-term perspective of U.S. imports from North-east Asia: Japan, China, South Korea, Taiwan and Hong Kong. The suppliers, excluding China, are shown in blue, and China alone in red. Two things immediately are evident:

1. The share of total U.S. imports coming from North-east Asia -- including China -- declined, from 30-35 percent in 1985-95, to less than 30 percent in recent years.

2. Imports from China are replacing imports from other parts of North-east Asia.

In the 1970s, U.S. politicians began to criticise Japan for "stealing American jobs." At the time, Japan was a very difficult market for foreign companies to penetrate, and foreign investment in the country was quite small. Neither is the case today: U.S. (and other) sales to China are rising very rapidly, and foreign investment has become the stuff of legends.

As half of China's total exports are produced by foreign-invested enterprises, it is difficult to imagine that the profits from those companies are not a benefit to their home countries. The fact that the number of shareholders of such companies, and the number of consumers benefiting from lower prices far out-weigh the number of people discovering that making T-shirts in North Carolina is no longer competitive seems to have been blown away by the hot wind coming from Washington.

As has been noted in this column before, Hong Kong depends far more on international trade than on domestic factors ["It could be (much) worse," The Bulletin, May 2003]. Any action -- revaluation, import duties, quotas, boycotts, port strikes, SARS -- that undermines trade tends to deal us a very hard blow. To head off potential disaster, we all need to work to educate politicians on the folly of trade barriers.