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Made in China: What You Need to Know About Globalization
It's not us versus them
Trade relations between China and the United States is a heated political issue but it's more complicated than "us versus them." Here's why that kind of thinking is destroying our middle class.
As more Chinese goods flow into American markets, as the Chinese buy more American debt, as the Chinese increase global demand on commodities such as oil, it is easy for us to resent them or even see them as a threat.
However, take a closer look and you'll see something far more complicated. It's not Cold War II. It's good old fashioned colonialism: government (on both sides) stepping on its citizens to make multi-national big businesses richer.
DISCLOSURE: I have shares of mutual funds that invest in ginormous, multi-national corporations that do business with/in China regularly. Also, I have many Chinese-American and Chinese-Japanese friends.
US-China trade myth
"Hey Corwin, who do you think would win in a war: China or us?" a friend once asked me. This was a few years ago so we were both still in the Army. "Whoever has home court advantage," I responded. He seemed content with the answer and didn't pursue the subject any further. That's as intellectual as things got among the junior enlisted most of the time.
We were both thinking along the lines of tanks, missiles and troops. That's how the media shows US-China trade relations: us versus them. And it loves making us look like we're losing. Why? Simply put: because bad news always gets more ratings. The narrative goes something like this (and why they're selling it to us):
- US is incompetent and lazy, therefore doesn't produce anything (puts the blame on any American who works for a living)
- US buys goods from China because they are cheaper (drives Americans to work harder and longer; justifies layoffs, downsizing and off-shoring; making us feel guilty for asking for a raises or benefits from our employers)
- China takes trade surplus and buys US bonds (blames Chinese companies for making the safest investment in the world)
- China gets richer from #2 and #3 (puts blame on China as a nation--this is important)
- US must "stimulate" economy with bailouts (justifies the Federal Reserve pouring more money into big business' pocket)
- US gets poorer and further in debt (makes us angry at each other and eager to vote for big business friendly politicians)
- Wash, rinse, repeat
Why this is untrue: US-China trade is more complicated
Take another look at the cycle above. There is a grain of truth in it. The Chinese economy has been growing for a while. Chinese made products are out competing American made products in several industries. Chinese companies are buying US debt.
Now take that cycle and replace the word "China" with "Japan." Then go back about thirty or forty years. See? The same exact thing was happening. So what's happening in Japan right now? I live here but I'll make it simple: deflation. The Japanese economy isn't growing. It's shrinking.
Every time I go to the ATM I feel it because my dollars are worth less. My dollars are worth less because of deflation of the Japanese yen.
But doesn't the dollar get stronger? True, especially lately. Sometimes my dollars buy more yen. This doesn't mean much because then my new yen can't buy as much at the gas station or the grocery.
Now what's going on in China? As China's middle class expands it's becoming a nation of consumers--just like the US, Japan and Western Europe. There is absolutely nothing wrong with this.
However, unlike Japan, China's "boom" may last longer and may play out differently because of who is really holding the reigns.
This book changed my life. I thought I knew globalization. I was wrong. This book will get you thinking seriously.
But the yuan is pegged to the dollar! Right?
What does that even mean? The Chinese yuan (or renminbi) once had a fixed rate of exchange against the dollar. So regardless of what happens in either economy, the dollar leads the way and the yuan follows. The reason for this is to make Chinese goods cheaper in American markets. This has been going on for a long time but has stopped in 2005. Sort of.
To be fair, many other countries do this as well. Some countries have simply dropped their own currency all together and adopted the dollar completely such as Panama and Ecuador.
In China's case, why was this going on in the first place? Why was it going on for so long? Why didn't Washington do anything about it? The answer is creepier and more sinister than you think.
What's really happening
What you're seeing between China and the US now; what you saw between Japan and the US not long ago is globalization, pure and simple. There aren't just two countries in a simple tug of war but thousands of corporations all over the world scrambling to make things cheaper for consumers. These companies are scrambling to secure a competitive advantage.
But for what? For your money. For everyone's money. So, for those who think the Chinese boom will last forever, let me ask you: why is China the knock-off capital of the world? Why can't you name more than three Chinese companies? Why do they have to parasitise the good name of American companies?
On the other side, for those who have lost hope in the US economy, let me ask you...
- You are probably using a PC, running Windows. What country is Microsoft in?
- You probably have iTunes, an iPod or iPhone. Which country is Apple in?
- You probably love YouTube (I do!). Which country is Google in?
- You probably live in the modern world which relies on oil for everything. Everything. What country is ExxonMobil in?
- Your doctor probably over-prescribes you with too many medications to count. Or maybe this is happening to someone you know. What country is Johnson & Johnson in? Pfizer? Amgen?
- You probably saw a movie recently. What country is Hollywood in?
Mega-corporations are the new empires and our nations are their colonies
The countries bow down and the corporations take control. It's the golden handcuffs. Countries that don't play ball remain in Third World.
Back to the Yuan Dollar question. You didn't think I forgot did you?
The reason the yuan was allowed to be pegged to the dollar for so long is that the largest corporations in the world wanted it that way. But you probably figured it out by now.
China. A massive country of so many willing workers, so little political freedom and almost no regard for human rights or its own environment is a big-business paradise. The largest companies in the world contract smaller Chinese companies to make the product. Chinese companies and workers will always be paid less because of fixed exchanged rates. Said product goes to American markets at a discount because of said "dollarization."
The American people lose jobs in the beginning and go further into consumer debt in the end. The government, both sides of the Pacific, steps in only to provide the muscle when needed. Taxpayers pick up the tab.
It's hard to say which nation benefits from this relationship. Maybe neither do. Then again, if you're still thinking along the lines of countries, "us versus them," then maybe you missed the whole point from the beginning.
Empires without Borders
Money doesn't care about borders. As soon as a foreign government shows signs of cooperation, markets open and the money flows in. Money flows until cheaper investments are found elsewhere.
While foreign money flows the government must answer to foreign investors, usually without regard to its citizens. This video goes a bit beyond the China-US question. It illustrates what happens and its costs.