Import from China. Good or bad?

Chinese import has been center of debate for all sort of reasons. It is a threat or opportunity depends solely on how you view it. There are numerous protest group which will advocate banning import from China citing reasons from product safety to unemployment. All these issues are real but to decide import or not requires pragmatic thinking.

We import because it it cheaper to produce in another country then our own. Manufacturing is always done at place where total cost of production (rent, labor etc.) is cheapest unless some other factor such as government policy, public view etc. prevents it. Another reason for imports could be monopoly of physical resources, technology or patent rights that a country enjoyes over other.

As of year 2011 top three exporter to USA were China followed by Canada and Mexico. What is more interesting to note that Import from Canada and Mexico combined is about one and half of total Import from China. So why to have so much discotent and apathy against importing from China?

The most common answer you will hear is that cheap imports from China takes away domestic jobs. Lets ask ourselves a question - what type of jobs? Blue collar factory worker's job. The reason is simple that USA and other industrialised nations are shifting from manufacturing to service economy which makes citizen more productive. In past 50 years there has been gradual shift from manufacturing to service. Today only 1 in 7 people are employed in factory work as oppose to 85% in service industry. Economist will find similarity in this situation with industrial revolution 200 years back when farmer or artisans cribbed about jobs taken away by factories. Currently a fraction of work force is employed in farming which feeds entire nation. So when there is change people who can not adapt to change do not like it.

Even consumer spending pattern has changed. In 1947 expenses on food and cloth was almost 2/5 of total expenses which can down to 1/6 by 2007.

However change is inevitable because as country becomes richer (rise in per capita income) skill premium rises.

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