China – A Real Frenemy

Mainpoint: China is our main competitor, but is it our enemy?

Just the other day I was walking in a Cabi at the factory outlet in Napa, California. As I was walking around, I noticed that everything was imported, not a surprise, especially for an outlet store. But as I continued to look, I noticed something a little different. I viewed “Made in China” over and over. This is different in that, there were not the “other importers”. No made in: Bangladesh, India, Cambodia, Vietnam, Mexico or Cambodia. In fact, as I looked at everything within Cabi, my final tally was 99% made in China, and 1% made in Taiwan.

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What if there was a major dispute between China and the United States

All this made me think: what if the United States had a dispute with China? Cabi would be totally devastated. But how about the rest of the United States? Obviously, the dollar stores will be in big trouble. All the iPhones and Android phones would be suddenly unavailable. Most of the electronics would be unavailable. Auto parts from China, a major contributor to auto parts, would all be gone. Clothing, shoes, hardware, just about everything, would take a major hit as greater than 70% of our imports come from China. The conclusion is obvious, the United States is totally dependent on China. The United States is not an independent nation.

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Tension between China and the United States

It is not like it is impossible that the United States and China could become arch enemies. There has always been an undercurrent of distrust since Mainland China became a Communist nation. Plus, China has a long history and still currently favors, the United States’ former arch enemy, Russia, on all diplomatic disputes. Furthermore, the United States have treaties with countries like Japan, South Korea, the Phillipines and Taiwan, so that if China should attack one of those countries, the United States would side with our allies. And it is not like there isn’t any tensions already. There is currently a land dispute between China and Vietnam, the U.S. would take the side of Vietnam. And there is, also, a land dispute between China and Japan regarding some islands, the same scenario exists.

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China’s position

But China, although full of itself with its strongest economy and largest population, realizes that a dispute with the U.S. would be severely detrimental to their country. Like the U.S. which is dependent on China’s imports, China is dependent on the United States buying their exports. Plus, China does not have the military firepower like the U.S., or for that matter, like Russia. One should expect China to execute a quiet military build-up over the next decade.

What is my personal opinion on China?

With all this talk, I find it unlikely that the U.S. and China should come into real conflict soon, even if a certain politician threatened to call China a currency manipulator. At the current time, the economy of both China and the United States are interdependent, and thus, they will need to avoid conflict. My current feeling about China is mixed. It may be similar to what the public felt about Japan in 1980’s. The US felt like Japan was drowning the country with Japanese cars and was envious that Japan was economically strong, and that the Japanese were bragging by buying huge tracts of U.S. land, building giant Japanese banks and hotels and buying American iconic properties like Pebble Beach. But, soon, Japan’s economic bubble burst and Japan brought plants to the United States to make “Japanese” cars in the United States. And, now,everything is all hunky-dory.

America’s Fear of China

China is a much bigger rival than Japan was in 1980. So, yes, there is envy. The public doesn’t like foreign nations buying up U.S. land, especially when it is not possible to buy land in that country. Chinese millionaires are buying million dollar homes, they have purchased a Napa winery, Silenus – to furnish Napa Valley wine to the Chinese population, they are buying large tracts of lands and purchasing many U.S. businesses. Within mainland China: cities are greatly expanding; super-highways are being built at a record setting pace; towering skyscrapers are being constructed every week; bullet trains are weaving throughout the country (in a way the United States can not even comprehend); and it has the fasting growing number of millionaires. Yes, there is much to be envious of. Especially since it was much of it has been financed by American money and the American’s consumer addiction to cheap.

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But more troubling is that China’s economic policy for export, export, export which has devastated the United States’ manufacturing and research capabilities. The United States has lost 5.1 million manufacturing jobs since 2001, 2.1 million went directly to China, another 0.6 million lost due to the trade deficit with China. Plus, Chinese imports and the downward pressure of prices has caused a downward trend on American salaries. Taken with other issues: China’s government devalues the Chinese Yuan (making imports cheaper); improper subsidies to relocate American businesses to China; disregard to quality standards (importation of lead- laced products, dog treats that poison pets); Chinese government pressure on U.S. businesses to start manufacturing in China (or they will suffer a highly penal tariff rate); the use of slave labor and slave-like labor; and the disregard for environment – pollution, toxic waste sites which does effect the United States as well. So, there is a lot to be unhappy about when it comes to China.

The Real Problem

So, you can’t blame this all on China. Every country (except the U.S.) would do what it could to make its own economy stronger. If the United States wants to keep feeding you, you take it. Every country has been partaking of the U.S. generosity towards outsourcing since 1980, but China has been very coordinated in their efforts thanks to their strong central government since the late 1980s. Maybe, there is the beginning of a breakthrough. Recently, China has been bringing businesses and manufacturing to the U.S. (like the Japanese car manufacturers did). And, it is hoped that China will eventually switch from an exports economy to a consumer economy and therefore, (we hope) will start purchasing American products (like we make anything anymore).

The real problem lies within the United States who have been operating without an economic or manufacturing plan since 1980 (except to decrease taxes).  It is like launching a boat out onto the sea without a motor or a sail, or a compass or even a rudder.  The U.S. is a massive drifting  ship moving listlessly depending on the the winds, tides and the whims of numerous outside agencies. The result is easy to see: Poor infrastructure, no big projects, chronically high unemployment, decimation of the manufacturing segment, loss of high tech jobs, sky-high trade deficits and a squalid education system. It seems the only thing the U.S. is good at is  funding the military and making weapons – which is a government jobs program. We have become a service – only country whose jobs can be easily outsourced or automated.

The Solution

The United States needs an economic plan. Actually it is quite irresponsible not to have one. China has one. That is why their economy has swept right by us like we were standing still. The United States also needs to be more independent. The U.S. needs to increase manufacturing to supply at least 20% – 25% of what it needs, unlike the current 5% (0nly 2% of its clothing). This is more in keeping with European economic powerhouse, Germany, which manufactures 25% – 30% of what it needs. Other solutions: eliminate tax breaks for companies to outsource to another country – this is one tax break that I think most people can agree on, but I could be wrong,  I thought everybody was more fiscally responsible for 2013. Maybe create a an incentive for companies to start insourcing. Although, it is quite possible that China has already passed its peak as an outsourcing destination, due to the ever-increasing costs to do business in China. And, most importantly, the American people need to be convinced that buying American is the correct way to bring back our economy instead of pursuing the race to the bottom. China is not the problem, although if they could get away from the export, export, export policy that would help, the problem is the United States itself. We have shot ourselves repeatedly in the foot since 1980, maybe we can fix our self-inflicted injuries. China is not necessarily our enemy, but it is our cut-throat competitor who has not been playing by the rules (“What rules?! – there are no rules in business” – a paraphrase of Adam Smith’s philosophy). The government needs to put on some big boy pants and start playing Hardball just like how China treats us now. And people need to stop buying slave labor imports. That is the solution. The problem is whether we, as individual consumers,  decide to be part of the solution or part of the problem.


4 Responses to “China – A Real Frenemy”

  1. January 15, 2013 at 2:13 am

    Great piece Jack! I will do a post on it on my blog within the next few days.

    All the best,

    John Briggs

  2. 2 kathryn
    January 22, 2013 at 11:43 pm

    Great story. I’d like to add that it is not just China. It is any country, that isn’t your own.If China stops being cheap to deal with, another country will pop up to take its place. I’m Canadian, and will purchase from here first, then USA, then Mexico. I think between our 3 countries, we can grow and manufacture almost everything we need.
    I think if we all knew the devastation of allowing these cheap imports to come into our countries created, our governments wouldn’t have allowed it to happen. However, 20/20 hindsight is always perfect. Now that we know, we need to inform stores we don’t want imports. Vote with your wallet. If a product isn’t available, buy secondhand. At least a store isn’t going to re-order to stock their shelves. Recycling is always good.If secondhand isn’t available, maybe re-purpose another product (such as using a clothespin as a chip bag clip) or go without.

    • January 24, 2013 at 12:26 am

      I agree, vote with your wallet. I buy U.S. first, Canada second. As for Mexico, I am not sure what the working conditions are there so I have refrained from buying there. Other countries I find acceptable are Italy, France, Germany, United Kingdom, the Scandanavian countries, Portugal, Spain and Japan. -Jack A

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