Watching Michael Phelps in the swimming pool, Usain Bolt on the track and dozens of other dazzling athletes, not to mention the gargantuan and spectacular ceremonies that opened and closed the Beijing Olympics, it was easy to forget all those things that we in the free and democratic West find dark and distasteful about the People's Republic of China - the one-party rule, the authoritarian government, the suppression of free speech and the imprisonment of political dissidents.
It was easy also to forget, for the moment at least, those things that frighten us - chiefly China's growing economic might. The giant of southeast Asia has become, as some people put it, the "world's factory."
Its highly skilled but low-paid workers produce hundreds of consumer goods that are flooding our markets. At the same time, we are losing thousands of highly paid manufacturing jobs as our companies move work offshore to take advantage of the cheap labour in China and other emerging economies.
Over the past decade, China has consistently ranked as one of Canada's top five trading partners. The flow of goods between the two countries remains small compared to that of Canada and the United States. Nevertheless, it has grown exponentially, and largely to China's advantage.
Canadian exports increased from $2.5 billion per year in 1998 to $9.3 billion last year, an increase of 370 per cent. Over the same period, imports rose to $38.3 billion annually from $7.6 billion, a five-fold increase. Meanwhile, our annual trade deficit with China reached $29 billion in 2007, up from $5.15 billion in 1998.
The increasingly lopsided relationship has caused some well-documented pain in our manufacturing sector, but has yielded some surprising, if little celebrated, benefits.
"There has been a significant reduction in the cost of material goods and that's an advantage to the importing nations," says Don Brean, a professor of finance and economics at the University of Toronto's Rotman School of Management. "It contributes to the well-being of people buying everything from computers to socks to hammers. And these benefits are not evenly distributed across the population."
Low-income Canadians gain more than their more affluent compatriots because they spend a larger proportion of their earnings on such goods. "There's more stuff from China in a Canadian Tire or a Wal-Mart than there is in a Holt Renfrew," notes Brean.
The class-based repercussions of trade with China have been well documented in the United States, if not in Canada. In March this year, University of Chicago economists Christian Broda and John Romalis published a study titled Inequality and Prices: Does China Benefit the Poor in America?
They noted that official measures of the income gap between high- and low-income earners in the U.S. have risen substantially over the past three decades. At the same time, American trade with developing countries has quadrupled, yielding significant benefits for those who make less money.
"Using detailed household consumption data between 1994 and 2005," Broda and Romalis wrote, "we find that over this period the rise in inequality has been less than a third of that implied by official statistics."
Scott Moody, an economist in Gardner, Me., who is conducting a study of commerce between China and Canada for the Vancouver-based Fraser Institute, argues that the growing trade deficit may be a function of the way government agencies compile their statistics.
"The U.S. and Canada are effectively service-oriented economies," says Moody. "We're not really manufacturing economies anymore. The problem is that it is a lot easier to count widgets than services."
He contends that the value of North American banking, engineering expertise and other services, as well as patents on such things as pharmaceuticals, may not even make it into official trade statistics.
"Eighty years ago, we didn't do a good job counting anything," he says. "When it comes to services, we're where we were 80 years ago. We don't know how to quantify, measure or value services."
In short, the business relationship between China and North America is so new and evolving so fast that it would be a stretch to say that we know who's winning and who's losing.
But, for his part, Brean is certain about one thing. "Does the world want a closed, oppressive, internally corrupt China," he asks rhetorically, "or an open, dynamic, growing and prosperous China? There's no question in my mind that the world is better off with the China we have today."
(D'Arcy Jenish can be reached at jenish@businessedge.ca)
