1. Here’s a stunning number: The Census Department reported on Thursday that the U.S. trade
deficit declined to its lowest level in a year, to $56.5 billion. But Calculated Risk observes
that the bilateral trade deficit with China rose to an all-time high of $27.8 billion. Fully half
of the U.S. trade deficit is accounted for by one country — China.
The first conclusion to take from this is simple: No wonder China’s government announced a
$586 billion economic stimulus plan last weekend. China exported $33.1 billion worth of
goods to the U.S. in September, but how shaky is that crown? The U.S. economy is in free
fall.
The second takeaway is a little more subtle. Among all the bad economic news today, I saw
one headline that was tinted optimistically: “Wal-Mart Remains Upbeat.” The retailer
reported a 9.8 percent rise in profits for the third quarter of 2008, and CEO Lee Scott
professed himself “optimistic about the upcoming holidays.”
Wal-Mart’s recipe for success is no secret:
Wal-Mart, which is often viewed as a barometer for the retail industry, has benefited from its
low-price position as shoppers curtail discretionary purchases and seek bargains. In contrast,
sales at department stores and specialty retailers have been lagging, in part because of their
bigger exposure to discretionary merchandise.
But how does Wal-Mart get the lowest price? In significant measure, by sourcing production
of its goods in China. A rough estimate holds that fully 10 percent of the annual trade deficit
between the U.S. and China is accounted for by one company — Wal-Mart.
The Wal-Mart effect may partially explain the seeming disjunction between the U.S.’s failing
economy, shrinking overall trade deficit, and yet growing trade gap with China. The worse
things get in the U.S., the more Americans are relying on goods “made in China” just to get
by.
The Census Department reported on Thursday that the U.S. trade deficit declined to its lowest level in
a year, to $56.5 billion. But Calculated Risk observes that the bilateral trade deficit with China rose

2. to an all-time high of $27.8 billion. Fully half of the U.S. trade deficit is accounted for by one country -
- China.
Wal-Mart used to sell us only goods made in America. Now they sell us goods primarily made in
China. "Always Low Prices" they said. But now Wal-Mart has quantified their generosity, claiming to
save each of us $2,500 per year. Those savings are really handy when you've lost your job, or if you
actually draw a "generous" Wal-Mart wage. Let's look at a few other statistics. FIRST, a salary
comparison.
* The average annual salary of a Wal-Mart employee = $10,000. ($8.23 per hour times 24 hours
actually worked, on average, per week). (These are 2005 numbers, but you can be generous and
index them for theoretical, but probably non-existent wage gains for the last 2 years). * The average
per capita income for Americans = $42,000 * The Wal-Mart vs. U.S. wage differential is $32,000.
BUT, you can buy more from Wal-Mart/China and save $2,500. And then you have a net LOSS of
$29,500.
SECOND, a trade deficit examination, courtesy of the Economic Policy Institute.
* Our 2006 trade deficit with China was $235 billion. Wal-Mart, a single company, caused an
astounding 11% of that deficit with $27 billion in imports.
THIRD, a job loss examination, again courtesy of EPI.
* If we produce for export, jobs are created. But if we import goods previously produced here, jobs are
lost. In 2006, * Our U.S. trade deficit caused a net loss of 2.7 million jobs in 2006. This is because
526,000 jobs were created because of exports, BUT nearly 3.3 million jobs were lost due to imports. *
The Wal-Mart deficit caused 196,000 net job loss in 2006. Wal-Mart is responsible for 11.2 percent of
America's net trade-related job loss from 2001-2006. But those lucky unemployed folks saved $2,500
per year if they shopped at Wal-Mart.
The US is pushing India to allow foreign direct investment (FDI) in retail at the highest
level. Last month, President Barack Obama told PTI: “In too many sectors, such as retail,
India limits or prohibits the foreign investment that is necessary to create jobs in both
our countries.” And some weeks before this, US Secretary of State Hillary Clinton flew
down to Kolkata to persuadeMamata Banerjee to drop her opposition to FDI in retail.
Such lobbying by the top American leadership can only be for a company that carries
unprecedented clout: Wal-Mart, the world’ largest company and retail chain with annual
sales of $405 billion, and employing 1.3 million people in the US and 2.1 million
worldwide.
The pressure on the Indian government is such that the Congress party has forgotten its
own struggle against British Raj, the ideas that still motivate the political class in the
country. It is at its wits end trying to justify a policy that no one really believes in but
feels compelled to push through.

3. Wal-Mart imports $30 billion worth of manufactured goods, mainly electronics, FMCG products and toys, from
China. Getty Images
The clearest argument against opening up retail is that the suffering caused by the loss of
livelihoods in small retail stores would far outweigh any possible gains to the economy.
Not only that, Wal-Mart could also benefit the Chinese manufacturing sector more while
forcing our own factories to close down.
Retail is the second largest employer in the country after agriculture and some 40
million families depend on business from small kirana stores, rediwallas, or hawkers
who sell knickknacks on the roadside. With very few jobs being created in
manufacturing, the small and tiny retailer is a thinly disguised form of unemployment or
underemployment. For many who aren’t able to get a decent job, it is the only option — a
way out of hunger and despair.
The government’s decision to bat for big retail mainly relies on a study-cum-survey
ordered by the Prime Minister’s Office (PMO) and conducted by the Indian Council for
Research on International Economic Relations (ICRIER) on the impact of big brands
and retailers. Their report, Impact of Organised Retailing on the Unorganised
Sector, submitted in 2008, was the basis on which the government proposed opening up
retail for foreign investors. Surprisingly, this survey wasn’t widely disseminated among
even members of parliament.
The ICRIER study says: “The growth of organised retail will enhance the employment
potential of the Indian economy…. it will drive the growth of a number of activities in
the economy which in turn will open up employment opportunities to several people,”
including “food-processing, textiles and apparel, construction, packing, IT, transport,
cold chain, and other infrastructure.” The government maintains that 10 million new
jobs will be created over the next three years after the retail giants come in.

4. This is highly contestable. There is already a growing organised retail sector in India with
large conglomerates such as Reliance, Tatas, Bharti, and the Aditya Birla group running
thousands of stores, apart from Pantaloons, Spencers and Shoppers Stop. According to
management consultancy AT Kearney, these Indian retailers account for around 7
percent of India’s retail business and are growing much faster than the small sector.
While the growth of Indian companies in retail is to be welcomed, bringing with it many
of the changes needed in supply chain management, the giant multinationals are another
matter.
The Indian retail market generates close to $409 billion annually, about the same as
Wal-Mart’s revenues of $405 billion. But this is the difference: in India 40 million people
are employed, 20 times the 2.1 million people employed by Wal-Mart, or 10 times the
four million employed by the top five global retail giants. A study on FDI in India’s Retail
Sector,by the Centre of Policy Initiatives, says that if large FDI retailers like Wal-Mart,
Metro, Carrefour and Tesco “were to take 20 percent of the retail trade, as Hindustan
Unilever anticipates, this would mean employment of just 43,540 persons, displacing
nearly eight million.”
While adding jobs in related sectors, the supermarket expansion leads to massive
employment loss in the currently inefficient value chain of mandis, buyers, wholesalers,
distributors and transporters. Like the East India Company in the 19th century, Wal-Mart
could buy cheap and sell dear to make huge profits by controlling both ends of the value
chain. Also misleading are contentions that its efficiencies would give farmers higher
prices at a lower cost to consumers.
In a recent article in Mint, Himanshu of the JNU writes: “One of the studies
commissioned by the US Congress in 2008 was on the linkage between farm gate and
retail prices. The average value of farm share (the share of total retail price received by
farmers) declined from 41 percent in the 1950s to around 35 percent in the 1970s, and
then declined sharply after the 1980s to only 18.5 percent in 2006…. For the record, an
Indian farmer gets anywhere between 60 percent and 70 percent of the retail price for
rice and wheat. The percentage varies, but it is upwards of 50 percent for most of food
items, including eggs and poultry.”
Equally damaging would be the effect on manufacturing. The company is notorious for
driving down costs in the manufacturing sector. According to a report by the American
Federation of Labor, in 1995 just 6 percent of Wal-Mart goods were imported, but
“today 60 percent of its total merchandise is imported from more than 6,000 suppliers
in 63 countries, with China at the top of Wal-Mart’s supplier list.”
Wal-Mart imports $30 billion worth of manufactured goods, mainly electronics, FMCG
products and toys, from China. Unless Indian manufacturing is made competitive with
that of China, the advent of the retail giant could mean the closure of many Indian
manufacturing plants as well.

5. Already India has a huge trade deficit of $28 billion with China. With Wal-Mart’s entry
into the country, there would be a flood of low-priced Chinese imports through its
outlets, further distorting the trade balance, impacting factories and manufacturing jobs.
The US- based Economic Policy Institute estimates that “Wal-Mart’s increased trade
deficit with China eliminated 133,000 manufacturing jobs, 68 percent of all jobs lost. On
average, 77 US jobs were eliminated for each one of Wal-Mart’s 4,022 US stores in
2006,” as its size gives it power to drive down manufacturing costs. India would not fare
much better.
Unless manufacturing is reformed to make it competitive with the best in the world
(read: China) the retail giants cannot be expected to play the role of catalysts. In a
newspaper article last December, senior BJP leader Arun Jaitley wrote that “the time for
allowing FDI in the retail sector in India has still not come… India needs manufacturing
sector reforms in the first instance, so as to enable us to develop into a low-cost
manufacturing economy … In the absence of these reforms, international retailers will be
selling the products of low-cost economies, leading to an adverse setback to our already
challenged manufacturing sector.”