If China Really Wants to Buy $200 Billion More Stuff From Us, We Can Make It For Them

The New York Times warns that concessions by the Chinese in trade negotiations are probably a mirage:

Chinese negotiators are preparing to offer the administration a deal to buy up to $200 billion worth of American goods….But the Chinese promises would be largely illusory, economists cautioned….“The short answer is these are unrealistic numbers,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics….“It would even be a stretch to get it to $50 billion,” Mr. Bown said.

That is because the United States economy is already running near its full productive capacity, meaning it would not be able to produce enough new goods to meet Chinese demands, especially in the short term.

Hmmm. Dean Baker has some thoughts about that. And me? Naturally I have a chart:

Manufacturing currently contributes about $2 trillion to GDP. That would go up about $150 billion if capacity utilization merely returned to its 1988 level—which is obviously not impossible—and it would require adding a little less than a million workers to the manufacturing sector. Assuming that some of them came from other jobs while others rejoined the workforce, it would probably mean an increase in the employment-population ratio of about one percentage point. That would put us at the same level we were at for 20 consecutive years until the Great Recession. And this would happen over the course of several years, not overnight.

That’s a big lift, but there’s nothing literally impossible about it. And the funny thing is that the Chinese might actually be serious about this offer. They might welcome an excuse to steer their economy away from being so dependent on the US as an export market.

In the end, I suppose I doubt that. Still, the idea that our economy is so maxed out that it couldn’t produce an extra $200 billion worth of goods if China wanted to buy them is a pretty dubious proposition.

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