In 2011, the U.S. trade deficit with China was $272 billion.
The U.S. imports consumer electronics, clothing and machinery from China.
A lot of the imports are from U.S. based companies that send raw materials to China for cheap assembly. When they are shipped back to the U.S., they are called imports even though they are profiting American-owned companies.
China is able to produce goods that Americans want at a low cost. Despite the loss in jobs, this is unlikely to change. That's because most people would rather pay as little as possible for computers, electronics and clothing even if it means other Americans lose their jobs.
That's why the situation is unlikely to change, despite recurrent bills by legislators to impose tariffs or other forms of trade protectionism with China.
Most economists agree that China's competitive pricing is a result of two factors:
A lower standard of living, which allows companies in China to pay lower wages to workers.
An exchange rate that is partially set to be always priced lower than the dollar.
China's economy is the third largest in the world.
In 2010, its Gross Domestic Product (GDP) was $10.9 trillion in goods and services.
However, China has more people than any other country.
It has to divide this production up among 1.3 trillion residents.
In other words, its GDP per capita is $7,600.
Imagine trying to live in the United States on only $7,600 a year.
No wonder China's leaders are desperately trying to get the economy to grow faster.
They remember the Chinese Revolution all too well, and know that the Chinese people won't accept a lower standard of living forever.
China sets the value of its currency, the yuan, to always equal a set amount of a basket of currencies which includes the dollar.
In other words, China pegs its currency to the dollar using a fixed exchange rate.
When the dollar loses value, China buys dollars through U.S. Treasuries to support it.
In this way, the yuan's value is always within its targeted range.
As long as the yuan's value is lower than the dollar, China's goods are cheaper in comparison.
China must continually buy so many U.S. Treasury notes that it is now the largest lender to the U.S. Government.
As of November 2011, the U.S. debt to China was $1.13 trillion,
25% of the total public debt.Many are concerned that this gives China political leverage over U.S. fiscal policy, since it could theoretically call in its loan.
By buying Treasuries, China helped keep U.S. interest rates low.
Until the Subprime Mortgage Crisis, this helped fuel the U.S. housing boom.
If China were to stop buying Treasuries, interest rates would rise, delaying any recovery from the recession.
This isn't in China's best interests, as U.S. shoppers would buy fewer Chinese exports.
However, China is buying fewer Treasuries than in June 2011, when it owned $1.165 trillion.
China has been diversifying its holdings into other currencies, such as the euro.
The U.S. trade deficit with China means that U.S. companies that can't compete with cheap Chinese goods must either lower their costs or go out of business.
To lower their costs, many companies have started outsourcing jobs to India and China, adding to U.S. unemployment.
Other industries have simply dried up.
U.S. manufacturing, as measured by the number of jobs, declined 34% between 1998 and 2010.
As these industries declined, so has U.S. competitiveness in the global marketplace.
China has allowed the yuan to rise 16% and opened many Chinese markets to U.S. industries.
GM has moved a lot of jobs to China.
GM has been lowering the standard of living for the ordinary worker in the US just as many other big US companies.