December 29, 2023
No one would argue that one of our most complex trading relationships — and a totally one-sided one at that — is our relationship with China. To get a first-person feel for that relationship, I decided to get a reality check with a pre-Christmas trip to China’s principal American retail outlet, Walmart.
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I knew I’d find Chinese-made products there, but I wasn’t prepared for the sheer number of them. Looking only for well known name brands, I charted a course to the housewares, sporting goods, and hardware departments and made these observations: Oneida silverware (Indonesia), Mr. Coffee coffeemakers and Hamilton Beach toasters (China), Master Lock padlocks (assembled in Mexico), GE room air-conditioner, Stanley tools, Pennzoil multi-use pumps, Coleman tents, Daisy air rifles, and Head tennis rackets (China). Most clothing was made outside the U.S., like Wrangler cargo pants (Nicaragua), but the prize of the day went to those famous Danish Lego toys, made in Denmark, Hungary, Mexico, and China.
I could have stayed for hours and ticked off product after product that bore a “Made Elsewhere” label, but it got too depressing. Nearly the entire assortment of the electronic goods we buy for our homes are manufactured or assembled overseas — products like computers and peripherals, stereo equipment, wide-screen televisions, and mobile phones — most from Southeast Asia and China. It’s also astonishing how many Chinese-made products populate the lower value end of the price spectrum. They range from plastic extruded items to drop-forged tools, all made at factories employing low- or no-skilled labor.
Many of these jobs were once the province of American workers, but no more. They’ve been exported to countries paying bargain-basement wages that offer borderline if not deplorable working conditions.
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In the mid-eighties, I helped American companies set up offshore garment production in the Caribbean Basin under the Caribbean Basin Initiative after the invasion of Grenada. (The CBI was designed to help improve the economies of the region and prevent any further flirtations with communism.) U.S. executives were ecstatic when they learned they could make large profits by paying less for local labor. Several were also glad that OSHA wasn’t lurking around every corner until I reminded them that the U.S. government support they were getting came at a price: treating the foreign workers as if they were in the USA, with the same kind of workplace protection that we enjoy here. It was a tough sell because countries in the Far East, Asia, and South America were offering better incentives in the form of lower wages and relief from U.S. workplace regulations.
Is further American job loss and independence blood-letting on the horizon?
The answer to that question may very well be “yes,” and the next target may be the only viable sector we have left: services.
Several years ago, a Chinese manufacturing devotee, Steve Jobs, died, but the lure of big profits made in China by Apple’s offshoring did not die with him. And Apple is not alone by any means. American companies’ eastward push has continued unabated, and with that outsourcing and foreign investment, we have lost more than we have gained. We have lost our flexibility, our independence and our control.
And while Jobs’s computers have empowered our world, his company’s investments have ceded that power to the PRC. Because of super-low wages and the computer-driven modernization of third-world (formerly uncompetitive) countries’ factories, the Chinese have won U.S. manufacturing contracts at unprecedented levels.
“Okay, that’s just manufacturing; we still dominate the services sector,” say the enlightened among us. “That couldn’t happen with all America’s thousands of service companies.” Anyone who tells you that is spreading pure propaganda. Truth is, we are taking the last lap on the service sector equivalent of the Indy 500.
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The proof of the service sector decline lies not only in the expansion of overseas call centers — largely a phenomenon of the ’80s and ’90s — but more so in the outsourcing of accounting services, medical records posting, product support, etc. While you won’t send your rug to a dry cleaner in Pakistan or get your hair cut in Thailand, you might be getting your taxes done in India via computer or get help setting up that new computer by somebody in Malaysia or the Philippines — or China.
The digitalization of the world, coupled with low Chinese wages and the enormous Chinese-held American debt and our growing trade deficit with them ($64 billion/year according to BEA: U.S. Bureau of Economic Analysis) are further evidence of our addiction to foreign-made goods, and if this situation is left unchecked, it will lead to a heightened state of trade subjugation and a soft occupation of the USA by the Chinese.
Twenty twenty-four is an election year. Along with all the domestic issues that cause agita among our voting class, we ought to be focusing on geopolitics, and especially trade geopolitics, rather than spending our waking hours on social media. The U.S. must reassess its global presence and learn to make better longer-term decisions that do not negatively impact our ability to compete or severely weaken an economy that was once the envy of the world. Underestimating China is a mistake we make at our own peril.
And the strategies we use should be…?
First: We must reject any notions that China is not interested in dominating the world’s currency markets, dominating industrial manufacturing, hoarding precious metals, minerals, and commodities, or imposing its values on the rest of us. Second: We must be aware that China has a long-term strategy to achieve its goals and that it has a history of patiently waiting until the moment is right to strike. Third: We must also realize that China employs circles the wagons. Fourth: China has territorial ambitions vis-à-vis Taiwan and the South China Sea. If we need proof of how wrong everything can go, we need only look to Hong Kong for the answer.
In the 1980s, we experienced what some called a “Japanese takeover of Manhattan.” Japan was investing heavily in that city (and elsewhere), and many Americans were worried about Japan suddenly owning our prime real estate market. I was more worried about nations that held our financial “promissory notes” and could be persuaded to sell off our securities, leaving us holding an empty bag and a mountain of worthless debt. Those were the worst of times…until now.
While Japan still holds the lion’s share of America’s debt, the Chinese are number two with $859 billion. That should worry everybody, but what is even more worrisome is how badly we are handling our relationship with the Chinese. The Biden administration reminds me of a timid lamb sitting in the shadow of a dangerous predator, believing that the shadow is just night closing in. Night is closing in on us, but not in a safety-making way. More dependency will only make things worse. It’s as simple as that.
Stephan Helgesen is a retired career U.S. diplomat who lived and worked in 30 countries for 25 years during the Reagan, GHW Bush, Clinton, and G.W. Bush administrations. He is the author of fourteen books, six of which are on American politics and has written over 1,300 articles on politics, economics, and social trends. He operates a political news story aggregator website: www.projectpushback.com. He can be reached at stephan@stephanhelgesen.com.
Image via Pxfuel.
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