The "cheap labor" myth when it comes to competition with China.
MYTH: The U.S. can't compete with China because their workers are paid so little.
FACT: Actually, the great myth is that China has a large advantage because of "cheap labor." In actuality, labor is only a small part of the overall cost of production (look at the steel industry as a good example). China's real advantage is that it illegally subsidizes its manufacturing sector (particular with a deliberately undervalued currency).
If the U.S. stood up to China, and made them play by the rules of world trade, America's manufacturers could compete very favorably, particularly because they enjoy far greater productivity and efficiency than Chinese firms.
A good example: Germany pays its workers incredibly well, but is also a very successful exporter.
MYTH: China holds so much of our debt, we can't act.
FACT: China holds roughly 10% of publicly held U.S. debt.
Does China have leverage as “our banker?”
Not really. Default would do far more harm to China, which holds a total of $3.2 trillion in foreign currency reserves, than it would to the U.S. The simple truth is that China needs the U.S. more than we need China. There is still considerable domestic and global demand for U.S. debt as a safe haven, so we really don’t need China’s banking services, but China has no substitute for the American consumer market. China depends on the U.S. for a sizable portion of its manufacturing employment, shipping about one-third of its export goods to our market.
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