China Rising, US Falling ?

[powayseller]

I wanted to start a thread where we can discuss China and the US and their futures.

I read today on Bloomberg that China’s year over year retail sales increased 14%. The government instituted a minimum wage to encourage consumption, and more social programs designed to reduce savings. The Chinese save so much because their lack of social programs has caused much fear of the future. The fear of the future encourages a very high savings rate. So now they can reduce saving, increase spending, and become less dependent on exports. Jewelry sales are up 40%, auto sales up 27%, and Best Buy is opening a store. link

Meanwhile, US manufacturers are pouting that China’s low exchange rate gives them an unfair advantage. Isn’t the real problem the lower cost of labor? Free trade has as its result a level wage for the entire world, does it not? The day we agreed to free trade, didn’t we also agree to lowering our standard of living, as our wages must come down to meet the rising wages of people in lower-paid countries. So while we bemoan our lower wages and unemployment, we also like the cheaper goods. So why complain now?

It’s really immature of US manufacturers to complain about China’s currency. They can do with their currency as they please. Didn’t anybody see this coming?

What does seem unfair is China does not protect our copyrights, and the allow pirating of software, movies, luxury goods. But do we have any power to ask them to stop? Have we given away all our negotiating power, so we are just their mercy? If they want to pirate our hardware, what can we really do about it? As Hillary Clinton said, you can’t really argue with your banker. They’ve got the power now.

Our other problem is that the US is burying itself into a deeper hole, and I don’t see any way out. As my brother said, “The US has a massive debt and no apparent means to stop that debt from massively increasing every year (think about it: we are now in a long BOOM period with low unemployment and a strong economy, yet still going further and further into debt at record levels), much less ever pay it off.” It does seem very hopeless.

[BuyerWillEPB]

After I graduated in 2004, I knew I would never get another chance to take time off once I started the career. So I took 3 months off and traveled all over China. This post reminded me of how I described to my family what it’s like there.

I told them to think about how we imagine the 1950’s here in the USA. We think of everyone getting good jobs, buying a car, a TV. We think of families, and neighbors getting together and talking and having fun. (One time I even saw all the neighbors gathered around one family TV just like they did here a long time ago.) We think of it as an exciting time, with lots of hope for something better. Well, China is like that right now. The feeling I got when I was there is that right now, for them, is like the 1950’s was here.

[PerryChase]

BuyerWillEPB, good for you that you took 3 months off to go to China. There’s nothing like seeing it in person. What people know about China from the press is only part of the story.

A rising China does not mean a declining USA. China can help America grow and vice versa. America share of the world’s GDP may decline but we should be OK with that as long as we can grow. As other countries get richer our share of the political influence will also decline. That’s not necessarily bad either.

As Tom Friedman said (I paraphrase) as we are stuck in Iraq and the war on terror, China and other countries are forcing new alliances and commercial ties. The world is moving on without us. We’d better fix Iraq quickly and move on with our lives. It’s like trying to sell an overpriced house for years. Your life is on hold during that period while your peers are happily living their lives.

If you travel to Asia, you can feel that China is beginning to replace America in terms of commerce and influence.

[Anonymous]

If someone wants to sell you something cheaper, that raises your standard of living. It does hurt those who compete in making the same stuff but since so few in this country still work on that the average effect of trade with China definitely raises standard of living. Except for two problems: cheap financing enables a lot in this country to live beyond their means; our system is not set up to help those who lost jobs to competition so the benefit of trade is not spread to all corners. But keep in mind automation eliminates way more jobs than trade.

[Anonymous]

IPR is an interesting issue. In Chinese eyes it is equivalent to us demanding a tax. Even if their government is willing to support that, people will resist until they see a benefit. Plus private right owners really need to do the heavy lifting to enforce their rights even in this country. The music labels were suing all the file-sharing services not the government.

[qcomer]

I was in Shanghai for a week in September. In short, China is like a young person starting his business/job and willing to put long hours, being creative, imaginative, resourceful and frugal to build an emipre out of his small business. Compare that to USA which is a big, fat, lazy, unimaginative, stuck with too much regulatory processes, corporate like GM or maybe Microsoft to some extent.

In China, I saw engineers bringing sleeping bags to work and working almost 14 hours. From your hotel waiter to the child selling you fake Omega watches on the street to the executive you work with, its all about making money and more money all the time (maybe a turnoff for tourists as you will see everyone trying to ripp money off you in cities). Its a race out there to increase your standard of living and they are working full throttle. They are a communist country but they are probably better capitalists than the US. The lack of belief in God + materialism has a nice combination with eastern traditional values.

China’s biggest problems are poverty, its huge export oriented growth, lack of social programs by govt and mostrous environmental issues.

[lewman]

Free trade and globalization do hurt some people and typically they are the ones whose jobs are outsourcable. But there are even more beneficiaries and they’re the ones whose standard of living improve thanks to walmart’s everyday low prices.

But I don’t think the game is necessarily over for the US. A friend works for Nestle’s baby food unit and chinese consumers love the products even though they charge a premium price but Nestle’s got the brand power that implies quality and chinese parents are known to be willing to give their kids the best. Another friend works for a company that makes equipment for biotech firms and thier innovative products again can charge a premium and innovation is not easily compromised by cheap labour.

What it means is that the game is not about the yuan like politicians say. Paulson understands that key is access to the growing chinese market for US companies and that’s what he’s going after. Assuming chinese authority is smart enough (I hope and think they are because they’ve got Japan’s history in front of them for what not to do) they will open up the market, albeit gradually.

[Anonymous]

“Compare that to USA which is a big, fat, lazy, unimaginative”

Every time a rising Eastern power threatens to overtake America by growth rate (60s USSR, 80s Japan, etc.) it amazes me how much self-loathing America dishes on itself. Really, we heard the same words during the 80s when Japan was the rival. Is it really different this time? China has infinitely larger problems than America in just about any economic, social or environmental measure I can think of.

[bgates]

If you want anti-American sentiment, you’ve come to the right place with this board. Or should I say left place.

For those who have visited China, how does the One Child Policy manifest itself? My biggest problem in analogizing China to 50’s America is that two American families gathered around a tv would have more than two kids between them. I also read on wiki that the policy combined with Chinese chauvinism has led to an extreme gender imbalance – 116 male children for every 100 female in 1990, which means one in seven male Chinese high school kids is mathematically unable to have a girlfriend. No wonder they’re industrious.

[(former)FormerSanDiegan]

Cycle –
Great points. Anyone else remember the Japanese taking over the world in the early 1980’s ? It was to the end of American society as we know it. They ultimately bought up billions in commercial RE on the West Coast and then we stuck it to them with the early 90’s recession.
I wonder how we’ll stick it to the Chinese ?

[lindismith]

The Chinese are very dependent on us continuing to buy everything they produce. If we stop buying, they will suffer.

My people in Taiwan tell me that more and more, they are looking to their number 2 market, Europe, to replace our buying power. I think that’s unrealistic though – we’re just too big.

Regarding the males, bgates – I’m not really sure how it manifests itself any differently to any other developing country, of which, most seem to value men over women. Usually you just see men in the streets, and obviously men are always in charge. I can say that when I’m there doing business though, they always treat me with complete respect, even though I’m a lowly woman.

As for us manufacturers being immature, Poway – hey, I’m just trying to earn a buck. The government officials I elected should be protecting my interests, but they’re not. Don’t get me wrong, I’m not complaining, but that’s because my business is growing. I’m not sure I’d feel the same if it was dwindling. And just so everyone’s clear on why everything comes from China: I pay a labor rate of about $12.00 to $17.00 per hour, depending on the skill. When I produce something offshore, I pay 60c an hour. When did we last pay our workers that? 1920?

The Chinese culture is very sophisticated, and very deep. I would recommend it as a must see for anyone interested in travel and other cultures. I read an interesting article recently in the NY Times about how they are investing in Africa – for their resources of course. Very smart.

Lastly, my agent in Taiwan tells me across the board, orders are down the last few months. “It’s been very quiet, Linda”

[powayseller]

Lindi, just to clarify, I’m not convinced that free trade is a good thing. If we had kept free trade in check, and not allowed so many imports, we would have higher inflation, but we’d also have kept more of our manufacturing base and better jobs in this country. Maybe we’d be able to produce as much as we consume. I don’t understand why free trade is a good thing. I’d like someone to explain to me how we are better off today than in 1980. Maybe I’m even against trading with lower wage countries. They exploit their labor and environment to make things cheaper, and I think we just should boycott products made in that fashion.

Anyway, so we really have fair, free trade? When we give handouts to our farmers, we are not engaging in free trade at all, because we give our farmers a competitive advantage over Africa’s farmers. China doesn’t care about violating copyright laws, so where is the free trade when they just copy our music, hardware, drugs?

[lindismith]

yeah, I’m a total capitalist, but capitalism comes with some serious problems. You name some good ones. I’m not sure why we need free trade either. Maybe our standard of living has gone up because we can buy more stuff for cheaper, but honestly, I’m not sure that really raises the standard of living so significantly. My cousins in Australia pay more for clothes and electronics, but they are more content than us.

[gold_dredger_phd]

If you’re so against free trade or don’t understand why it’s such a good thing, then why don’t we just prohibit the importing of oil into this country as well? That would allow the domestic producers to charge $200 per barrel of oil and help bail out our domestic oil industry. Who needs cheap crude from Canada, Russia, the Middle East or Venezuela? We need to keep our money at home.

We could save all of our domestic industries this way and even save the UAW’s job bank at the big three auto companies. I love the idea of auto workers having jobs for life, even if they don’t have to work on the assembly line! Driving around in shodily-built, union-bum mobiles from the early 1970’s makes me feel so warm and fuzzy inside. These guys had an entitlement mentality and were able to extort white-collar wages from the manufacturers. The manufacturers had a huge fixed cost in plants and other capital-intensive equipment that could not be moved to Mexico, the South or offshore and would just acquiese to get some labor peace. They raised their prices to cover the cost simply because at that time the US had about 50% of the world’s manufacturing capability and little of the world’s populace.

Another factor that led to this unusual prosperity was that about 3 billion people were mired in socialist/communist utopias and so would never be able to compete with the capitalist world. That era has been ending since 1980 up to the present time. Everyone in Asia wants your job or at least your money. They need it more than you. If you want more money, then go get a second job, get your wife a second job or go mortgage your house again.

I agree that the people in the US will have a lower standard of living than we would otherwise had these people in the former communist countries, China, India and other former socialist countries not cast aside their irrational economic policies. The 1950’s are over. Forever. Get used to it. Free trade or Fortress America, the American century is over.

[Anonymous]

Trade does not raise our standard of living? I guess if you have to pay $1000 for a DVD player, $10000 for a HDTV set or $50000 for a Ford Focus you would really feel your standard of living raised. That could really justify $1M for a tract home and support our real estate! LOL

BTW, Japan was low wage before it became high wage. Asian tigers (Singapore, Hongkong, Taiwan, South Korea) were the same.

There are certainly a lot of drawbacks, but benefits shouldn’t be denied because of the downsides.

[Author]

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