ARTICLE: “Some Assembly Needed: China as Asia Factory,” by David Barboza, New York Times, 9 February 2006, pulled from web.

Fabulous take on a subject we should all know about by now and yet we constantly get fooled into thinking otherwise by statistics touted so regularly by the media and politicians.

China’s “huge” trade surplus with the U.S. has always been a myth. It’s a relic of old accounting standards that don’t take into account a global production chain that has emerged.

Our imports from Asia actually decrease in recent years, with China simply stealing a bigger share from countries like South Korea, Japan, Taiwan, Hong Kong and Singapore and others.

The joke is, we only assign trade value at the point of final assembly. So when everyone makes parts that go into an electronic device and then all those parts are shipped to China for final assembly, does this mean China “manufactured” the device and therefore has “stolen” all that manufacturing from the rest of the world? Hardly. All this shows is that it should be labeled, “assembled in China,” not “made in China.” China may have a $200 billion trade surplus with the U.S. in this chain, but it has a corresponding deficit in the range of $140 billion with the rest of Asia, who are simply running a lot of their manufactures through China for final assembly.

Our multinationals are simply renting Chinese labor, which draws wages but never sees the profit. Foreign firms control almost two-thirds of China’s exports. If you count all that stuff as intra-multinational trade, there goes the vast bulk of our alleged trade deficit with China. As one UBS economist puts it: “In a globalized world, bilateral trade figures are irrelevant. The trade balance between the U.S. and China is as irrelevant as the trade balance between New York and Minnesota.”

It’s a great point, one I’ve long made about FDI figures. We are told that much of China’s FDI is actually Chinese money sent abroad and recirculated into China through trusted conduits like Hong Kong, Taiwan and Singapore, so we’re actually seeing a lot of greater China investing in China. Same thing is true for Europe’s huge FDI cumulative numbers: they count Austria investing in Italy. I have long contended in my talks that if you counted Michigan investing in Florida and vice versa throughout our 50 state system, our numbers would be astronomical.

In short, it all depends on how you want to count.

In the end, the U.S. benefits hugely by tapping China’s labor. Those who suffer on our end are the same who suffer all over Asia: low-end labor. What should be our response? Walls and protectionism? Or a lifelong learning system that continues to upgrade our talent?

Which path seems to point to a future worth creating?