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Made in China

A Label for Economic and Military Disaster?

by Michael H. Thomson
December 14, 2003

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Made in China_Michael H. Thomson- On TV recently I watched George W. Bush kowtow to the Chinese premier and sell out Taiwan. Now I wasn't greatly surprised by this and in fact it didn't make me angry - as it would have a few years ago - because I realize that the U.S. is not in a position to prevent Taiwan from being swallowed by The Red Dragon. It was inevitable, just like the "One China - Two Systems" swallowing of Hong Kong was inevitable.

What does make me sad - not mad - is that a great many Americans-distracted as we are by Iraq, Afghanistan, the Middle East, and those silly Europeans - are not paying the least bit of attention to China, which is quietly and powerfully on the move to become the next superpower...

They are not becoming a superpower by might of arms, but by might of goods. Have you inventoried your closets lately? How many Made in China labels are stuck to your clothes? When you cruise the aisles of our major department stores, have you checked the place of manufacture of the appliance you're shopping for? In many cases that major appliance is made in China. The United States is literally drowning in Chinese goods. They're high quality goods too.

Recently my wife and I bought a patio table from Sears. It was one of these assemble it yourself operations which I hate because I always end up being short one screw or nut. Remarkably, because of some of the best directions I've ever seen, I was able to put it together in less than fifteen minutes. There were no missing parts; however there were a couple of extra parts thrown in. Amazing! It was Made in China.

The U.S. Commerce Department has sent a delegation to China to investigate how China can manufacture TVs so inexpensively. Our domestic market is flooded with cheap Chinese TVs and its scaring our TV manufacturers. There's talk of imposing import duties on Television sets made in China to as high as 46 per cent. Will American consumers stand still for this? Probably not, we're too addicted.

Our trade deficit with China is closing in on 120 billion dollars. China is now the biggest contributor to the U.S. trade deficit. For years Japan held that position. China says that they will happily turn this situation around if only we (the U.S.) will remove our restrictions on cutting edge technology. The Commerce Department says this isn't going to happen. Keep in mind this is the same administration who recently caved in to the EU and lifted steel tariffs eighteen months ahead of time to the great dismay of our steel manufacturers.

I occasionally read The Peoples Daily, China's main newspaper. With the internet it’s easy to find by going to www.english.peopledaily.com.cn. It's actually a better read than the LA Times or The New York Times, mainly because the propaganda is not disguised. A day ago they had an article entitled "10 Reasons to Put Humans Back on the Moon". Most of the 10 reasons were ambiguous fluff until we get to reason number 8 which read:
8. Launch Industry: The Moon has minerals, and many proponents of human space exploration figure lunar mining is good enough reason to go back...
The Chinese have become the third country to put humans into earth orbit and they claim to be heading for the Moon shortly - less than five years from now. The current administration with the expense of Iraq, Medicare, and thousands of other tax draining expenditures has shown some concern about China’s Moon ambitions, but will probably do nothing substantive to keep us competitive. Others in government and out are giving some dire warnings. They believe China's space ambitions could have long term consequences for national defense.

In an article entitled Space Wars: Apocalypse Soon? by Bill Berkowitz posted at AlterNet.org. Berkowitz writes about several developments that lead him to believe our strategy towards China is changing:

Lt General Edward Anderson, a deputy commander of US Northern Command, at a conference in New Orleans was asked about the Chinese manned orbital mission. General Anderson told the conference that in his view, "it will not be long before space becomes a battleground." Anderson, who was also former Deputy Commander-in-Chief of the US Space Command, also stated that he thought China would be a major threat to our space capabilities i.e. satellite surveillance etc.

The vice president for strategy at Northrop Grumann Mission Systems, Rich Haver - a former assistant to Donald Rumsfeld - told the same group in New Orleans that "the Chinese are telling us that they're there, and I think if we ever wind up in a confrontation again with any one of the major powers who has a space capability we will find space is a battleground."

Berkowitz also states that Vice President Dick Cheney recently added Aaron Friedberg - a China specialist and Princeton University professor to his staff as deputy national security advisor and director of policy planning. Friedburg believes that economic conflict with China could lead to military conflict.

Future military confict or not, The People's Republic of China is affecting American's daily lives in a much different way than our old nemesis the Soviet Union ever did. The Cold War ironically contributed to American jobs. The economic war we are having with the Chinese has resulted in thousands of layoffs.

During the Cold War with the Soviets we never saw Soviet products in our stores or vice versa. It would have been unthinkable to help fund the Soviets military by buying Soviet refrigerators, TVs, or textiles, but that's exactly what we are doing with the Chinese. The Chinese military, which incidentally controls their space program, is the greatest beneficiary of revenue derived from trade with the U.S.

As a human on this island we call earth, I do not want to see China or any other countries fail to prosper. However as an American I do not want to see that prosperity come as a result of a lopsided trade balance. When we buy China’s refrigerators, TVs, and textiles, and they fail to buy our automobiles, computers, or agricultural products, thousands of American's go jobless. The bottom line: The U.S. needs to be much more aggressive in our trade relations with China despite the average American's addiction to Chinese goods. In that oft quoted, but highly appropriate phrase we should, "Wake Up America!"

Author's Note: During the writing of this piece, I was interrupted by the doorbell. Federal Express delivered a package sent by a dear friend. When I opened the package, it turned out to be a very fancy Christmas gift basket of goodies. Everything about the wicker basket of cheeses, spreads, etc., looked 100% American-even the name-Lake Country Gifts. At the very bottom of the basket was the label, "A product of China". I sampled some of the items, they were good!

Acknowledgements: The BBC; AlterNet.org; The Peoples Daily.

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August Ecklund from Arlington Hts, IL writes:
December 15, 2003
China has become a favorite subject for members of the press and politicians that love to blame others for our economic woes. Just as they did 20 years ago with Japan, they love to cite the growing trade deficit as proof that the US is in danger of falling behind economically and that the government must take action to protect its industries and workers. Then as now, they over estimate potential harm of Japan and China’s economic growth and downplay our own responsibility. Eventually, time caught up with Japan, as it could no longer support a high level of growth and its economy slipped into recession. China is susceptible to the same market forces that affected Japan and every other economy, so time will catch up with China also. The true culprit for the trade deficit is government deficit spending, which requires foreign investment for capital. A trade war or other defensive actions would lead to a loss of capital and have immediate devastating effects on the US economy. Reduced capital would ultimately produce far more layoffs in the US than the trade deficit.

Despite the US’s growing trade deficit, China is a very long way from becoming an economic superpower. True, China’s economy is growing very quickly (it averaged 7.7% growth in GDP from 1998 to 2002) and the success of its economic reforms is impressive. However, the reason its economy is growing quickly is that it is growing from nothing. It is very easy to achieve fast growth when you start at practically zero. In 2002, China’s GDP was $1.2 trillion compared to $10.4 trillion in the US (and $1.44 trillion in France). In 20 years, if everything goes perfectly for China and it maintains its current level of growth (which is unheard of), China will have a GDP of $5.29 trillion. Again, if everything goes perfectly for China (a very big “if”), China’s GDP will need 30 years at an average of 7.7% growth to reach the current US GDP. Are we to assume that the US GDP will not grow at all during that time? Certainly, if the US GDP stopped growing, the slow down would have devastating effects on China’s economy.

China’s economic situation becomes even bleaker when you factor in the size of its population and the government’s goal to maintain social order. With about 1.28 billion people, China’s per capita GDP is about $960 a year. To put that into perspective, Russia, which is not exactly an economic powerhouse, has a per capita GDP of $2,380 a year. The majority of China’s population is still rural peasants and there is a growing income disparity between rural and urban areas. The Chinese Communist Party maintains it legitimacy and the social order in the face of reforms by guaranteeing jobs, pensions and government subsidies. This guarantee causes great inefficacies in the economy and sustains loss-making state owned industry. In short, China is walking a thin line between market reforms and maintaining its social order. These two goals are pulling the country in two separate directions, and at some point, the government will have to choose one or the other. What will happen to the social order when the government bites the bullet and revokes the subsides while allowing companies to begin laying off millions of workers?

Finally, we should not blame China and Japan for our economic problems, because the US trade deficit is not the problem. It is only a symptom of another problem caused by US government deficit spending. In Macroeconomics, the theory of “Twin Deficits” states that when government spends more than it saves, it requires investment capital to make up the difference. In an open economy, deficit spending leads to trade deficits, because a trade deficit literally means receiving foreign capital and goods on credit (if you recall, when the US’s trade deficit with Japan was an issue, the US government was compiling a huge national debt). The draw back is that the American people must repay the debt, which means that the burden for capital falls on future generations. In a closed economy, deficit spending exhausts capital stopping investment and halting economic growth, which leads to unemployment. By taking a more aggressive trade stance with China and Japan, not only will we cut off American companies from potentially profitable markets, we also risk cutting off investment for economic growth. In either case, our own irresponsibility is threatening our present and future economic growth.

Therefore, I agree with one thing you said - it is time to “Wake Up America!” Wake up to the economic harm caused by out of control government spending.

(Economic data is at www.economist.com/countries)

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