Richard Nixon's Biggest Mistake
By Joel D. Joseph, Chairman, Made in the USA Foundation
Vladimir Putin said that the biggest mistake of the twentieth century was the breakup of the Soviet Union. Au contraire, the biggest mistake of the twentieth century was President Nixon's opening the door to China without imposing limits on imports and without having an agreement on pollution and currency manipulations.
Richard Nixon resigned from the presidency forty years ago. While most commentators have praised Nixon's China Gambit, the opening of trade to China has caused the United States more lasting harm than any decision made by any occupant of the Oval Office in history. Unless we reverse Nixon's course, our trade with China will lead to the downfall of American leadership and the evaporation of the American dream.
Until 1972 the United States did not trade with China. We were on top of the world. The unemployment rate was a low 5.6%. The average college tuition was a modest 7% of median income; now it is a staggering 26%. To pay this outsized tuition bill Americans owe more than $1 trillion in college loans.
Trade was virtually balanced in 1972. By 2012 the United States had a staggering $535 billion trade deficit, $315 billion of which was with China. This trade deficit is an anti-stimulus of more than one-half a trillion dollars a year--no wonder the economy has been stagnant and most Americans are living paycheck to paycheck.
In 1972, the top one percent of Americans earned 9% of all income; today the top one percent earns 19% of all income. Emmanuel Saez of the University of California, Berkeley, "Striking it Richer: The Evolution of Top Incomes in the United States."
The top ten percent earned more than half of all income, 50.4%, in 2012. In 1972 the top ten percent earned one-third of the total. "Top Incomes in the Long Run of History," Journal of Economic Literature, 2011. The middle class in America has been severely wounded: The Century Foundation concluded, "in the United States, real average annual earnings for production and other non-supervisory workers peaked in 1972 at $40,884, while total consumer credit amounted to just $2,804 per person. By 2008, average annual earnings had fallen by $6,408 to $34,476, and households were making up the gap with an extra $4,940 in credit per person--more than triple the ratio of credit to earnings as in 1972."
Trade with China Dramatically Increased Income
Inequality in the United States and Undermined the Middle Class
Most economists agree that expanded international trade increases income inequality in developed countries like the United States. The pro free-trade Peterson Institute for International Economics sought to quantify the effect of trade policy on U.S. income inequality and found that 39 percent of the increase in inequality was attributable to U.S. trade policy. William Cline, Trade and Income Distribution, (Washington, D.C.: Peterson Institute for International Economics, 1997), at 264.
Nixon's policies exported jobs to China by allowing a long laundry list of goods to be imported. China began exporting more and more goods, seizing opportunities to take over U.S. manufacturing by offering cheap labor. America fell into the trap.
Now, the U.S. imports almost every conceivable product from China. It is estimated that the U.S. economy has lost more than three million manufacturing jobs to the Middle Kingdom.
Nixon also relaxed currency controls allowing China to use American dollars. The Nixon Administration imposed no controls or regulations regarding China trade nor did it study what a trade deficit would mean to the American economy.