Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).

For some reason, the national media seems convinced that currency manipulation and other trade issues will top President Bush's agenda when he meets with Chinese leaders this weekend. Heaven knows why. It’s not as if he's expressed any serious interest in the subject up until now. It's not as if Congress has passed a bill forcing – or even asking – him to deal with Chinese protectionism. And it's not as if Congress is even close to passing such a bill.

But lets say the national media is right for a change. In that case, the President will no doubt want some handy talking points to show that something is rotten in U.S.-China trade. And he needn’t look much farther than the latest monthly trade figures put out by the Census Bureau.

As widely reported, this data showed that the overall U.S. trade deficit (including goods and services) jumped nearly 11.5 percent from August to September, to a new record of $66.1 billion. The overall goods deficit rose 4.3 percent. But the goods deficit with China (monthly figures for services are not yet available)  rose 8.65 percent to a record $20.1 billion. Even worse, although the Chinese economy keeps roaring along at near double-digit growth rates, U.S. goods exports to the People’s Republic plunged by nearly 18 percent.

Many analysts blamed the unexpected worsening of the overall deficit partly on the damage done to Gulf of Mexico ports by Hurricanes Katrina and Rita, which they noted had to crimp U.S. exports in particular, especially in commodities, and helped raise the price of imported oil. According to Bloomberg News, disruption at the ports increased the deficits in goods they handled from $8.3 billion to $11.9 billion.

Yet clearly other factors were at work. Otherwise, why would manufacturing exports have fallen by nearly 4.5 percent? They’re not very dependent on the Gulf ports. Nor do the hurricanes explain the steep decline in exports of high tech goods – by 7.93 percent. Just as important, nothing weather-related can possibly explain why U.S. exports to China fell off a cliff. Indeed, they decreased nearly twice as far as American shipments to protectionist Japan (10.28 percent) and more than five times farther than U.S. exports to the Euro area (3.33 percent).

Moreover, this export deterioration was heavily concentrated in manufacturing. Total U.S. industrial exports to China – which account for nearly two-thirds of all U.S. goods exports to China – sank by 23 percent from August to September, to $2.1 billion. True, some of the fall-off was due to the Boeing machinists’ strike in September, which held up aircraft production and sent shipments to China down by 76 percent. But even in August, when aircraft sales were robust, they only accounted for 16 percent of all U.S. manufactures exports to China.

Indeed, USBIC has looked at a list of 47 industries that comprise the heart of any advanced national manufacturing sector. They range from iron and steel to machine tools to pharmaceuticals to semiconductors and semiconductor manufacturing equipment. From August to September, exports of these critical products nosedived 33.6 percent, with huge declines registered in tires (79.67 percent), automotive air conditioning systems (91.3 percent), fabricated structural metals (57.67 percent), metal-forming machine tools (50.35 percent), conveying equipment (48.43 percent), construction machinery (43.24 percent – did the Chinese infrastructure boom suddenly end?), and navigation and other guidance equipment (40.6 percent).
U.S. exports of semiconductors to China declined 8.27 percent over the month, but shipments of the machines used to make semiconductors rose by 15.77 percent. When these machines go on line, U.S. exports of semiconductors to China could well shrink further.

Imports from China in these advanced manufacturing sectors just kept rising from August to September, by 2.59 percent overall. China’s big export winners to the United States in percentage terms were fluid power valves and hose fittings (44.6 percent), industrial gases (40.39 percent), and industrial molds (27.18 percent).

Of course, monthly trade figures bounce around a lot. But the deterioration in America’s China trade deficit has deep roots. This year’s U.S. goods deficit is running 28 percent higher than last year’s record, with import growth nearly 70 percent faster than export growth. And the manufacturing deficit is running 27.74 percent ahead of last year’s totals (also a record) with imports outgrowing exports by 73.51 percent.

Within manufacturing, the year-on-year deficits (as opposed to imports) are increasing fastest in the broad machinery and transport equipment and manufactures by materials categories – just under 31 percent each. The small surplus that American has run in chemicals and related products, meanwhile, fell by 45 percent.

In addition, some of the import numbers over the last year are truly breathtaking. The White House has approved new quotas on textile and apparel imports from China, which were indeed skyrocketing once the global quota system came to an end on Jan. 1. But from Sept., 2004 to Sept. 2005, imports from China of aluminum sheets and foils soared nearly 2,600 percent, and imports of smelted and alloyed aluminum jumped 683 percent. U.S. imports from China of industrial ovens during this period shot up nearly 361 percent, of plastics material and resins 312 percent, of oil and gas field machinery 272 percent, and of semiconductor manufacturing equipment 224 percent.

Indeed, the list of industries in which U.S. imports from China more than doubled over the last year also includes software, motor vehicle metal stamping, truck trailers, miscellaneous industrial machinery, conveying equipment, heavy gauge springs, heavy gauge metal tanks, reenforced plastic packaging and sheets, organic fibers, and industrial gases.

To some extent, the law of small numbers is at work here – in certain sectors, trade volumes aren’t very big, and therefore large increases and decreases are that much more common. At the same time, many of these industries simply aren’t high-volume producers in the first place. But their products are essential for various manufacturing processes.

The President, in other words, could make a great case that safeguards and import restrictions are urgently needed outside textiles and apparel, too.

So clearly, there’s no shortage of trade problems for President Bush to bring up when he meets with President Hu Jintao and other Chinese leaders. Granted, it won’t be as pleasant talking about these issues as it will be to praise Beijing for whatever the administration thinks the Chinese are doing to solve the North Korea nuclear crisis. In the long run, though, America’s economic ties with China will shape the military balance and strategic relationship between two countries, as well as throughout East Asia.  Anyway, how long can the President focus on the North Korea talks if all he can say to the Chinese is “Thanks for getting a room”?

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