Di Leo: The China-Fueled Supply Chain and the March of Time

Ask a buyer why his company imports goods from Mainland China, and he will have good reasons. Plenty of good reasons.

China has a very well-developed supply chain; your vendors can get finished goods made there efficiently, with locally sourced components, because they make all the components nearby too.

You can find huge Chinese factories that are conveniently located, close to the seaports, close to the airports. You can buy finished goods made a few miles from the port, or you can buy components with which to make finished goods here in the USA, as so many other manufacturers have been doing for decades now.

While prices have gone up, and tax advantages have gone down, quality has improved over the years; China still qualifies, after all, as a “low cost country.”

And that’s what we are told is the buyer’s job, right? Buy the product at the lowest price you can get. “Deliver shareholder value” is the mantra, from the business school to the CFO’s office, from the heartland to Wall Street.

And so it is that countless businesses, not just all over the United States, but all over Europe and Latin America too, have become ever more dependent on China for raw materials, finished goods, and everything in between.

China isn’t perfect, however. Every buyer knows there are shortcomings too, whether they want to admit them to themselves or not.

At a time when the global ocean freight transportation system is largely broken, transit times are no longer dependable. There have been no improvements since the nightmarish bottlenecks caused by the overwhelmed ports and rail yards of the Supply Chain Crisis of 2021 and 2022; volume is just down because of the recession. When volumes climb again, the same nightmares will return, making China again an undependable source.

Then there’s the ownership problem. The American business community doesn’t like to talk about it, but China is still a communist country. You don’t own “your” subsidiary plant over there, any more than your unrelated Chinese vendor owns “his” factory there. The Chinese government – the Chinese military, in fact – is the silent partner, which can exercise full control whenever it wants. Your trade secrets are no longer secret; your patents, molds and dies, technology and formulas are in the hands of the Beijing politburo, and have been since the day you send them there. The Chinese government may not have taken advantage of your Intellectual Property yet, but when they want to, they can. From their perspective, it’s not even stealing. You willingly gave it to them.

The world is angry at China, for enslaving millions of Uyghurs in western China. But the world is quiet about the rest of the enslaving that China does, all over the country. The Uyghurs aren’t alone. At textile mills, raw material sources, factories and farms from Tibet to the Pacific, China practices forced labor that qualifies for anybody’s definition of slave labor. If you buy from China, you’re supporting that economy.

So why don’t any of these shortcomings stop American companies from buying from China?

1. What doesn’t get measured, doesn’t get fixed. As long as companies don’t grade their purchasing departments’ performance on how well they protect the company from these many ills, and only demands “low cost suppliers” from their buyers, nothing will change.

2. You can’t change vendors when there are no other vendors. The Chinese have driven an incredible number of competitors out of business over the years. China today is the only source for an amazing number of products. This isn’t just an American failure; the entire western world let it get this way. We all need to restart countless industries all over the Western world – and with every year that goes by, this gets harder, as the people who remember how to actually make things, from castings to motors, from wiring to controls, get comfortable in other careers, retire, or die off.

3. China continues to manipulate the currency. Every modern country can do this, to a certain extent, but China has a unique ability to cheat this way, because as a communist country, the government can control not only the mint, but the banks, the manufacturing community, and the tax code. The American Fed can manipulate interest rates and regulate the money supply; the Beijing politburo can manipulate virtually everything in China.

4. These are hard times for American business. Whether our government admits it or not, we are in a recession. Companies understandably need to focus on getting through this downturn somehow, so they need to focus on cost-cutting measures and sales efforts. Changing vendors – especially to new vendors that look, on paper at least, like they’ll be more costly than the current ones – is hardly an appealing project at present.

Many hope that governments will intervene — that governments all over the world will put their foot down and close off importing to the raw materials, components, and finished products of Mainland China.

But while this was possible once, it is no longer a reasonable expectation. China has spent at least thirty years bribing their way into the hearts and wallets of diplomats, legislators, bureaucrats, business communities, and heads of state.

Our own NIH and CDC partnered with biological weaponry labs in China to co-develop viruses like Covid-19. A plethora of colleges and universities collaborate with the Chinese military under the guise of research, enabling Chinese students, businesses and professors to share sensitive technology across national boundaries without fear. The Chinese have bought, and now operate, seaports, airports, and logistics complexes all over the world. And Chinese generals have funneled millions of dollars into political families at the very top of the food chain, as we’ve seen from the sham consulting firms of the Biden family, among others.

After years of kicking this can down the road, the long-feared Pacific war is brewing, and suddenly looks like not a future risk but perhaps an immediate one. American businesses must now begin to realize that if they don’t start reducing their dependency on Chinese suppliers soon, it may be too late.

When China is on the other side of a war zone, it will no longer be a “low cost country,” it will have become a banned country.

American businesses need only to look across the Atlantic to see what they face in the not-too-distant future. Few of us were dependent on Russia for components or finished goods, and how lucky we are in that; sanctions have now completely cut off the Russian economy from our own.

What if – just as Russia invaded Ukraine, forcing the west into imposing sanctions on Russia as the aggressor – the next year or two should see China invading Taiwan? Similar sanctions would surely follow; the necessary services of banking and transportation would be completely closed off to such commerce, and that supply line would abruptly come to an end.

How well could the typical American company handle a complete and sudden termination of their China-sourced goods?

The time for the free world to pay attention to this risk – with urgency and vigor – is upon us. Government won’t force it; American businesses must awaken on their own, and get moving.

If the American business community doesn’t reduce our purchasing from China, quickly and voluntarily — circumstances and the march of time may well do it for them.

John F. Di Leo is a Chicagoland-based trade compliance trainer and transportation manager, writer, and actor. A one-time county chairman of the Milwaukee County Republican Party, he has been writing regularly for Illinois Review since 2009. Follow John F. Di Leo on Facebook, Twitter, Gettr or TruthSocial.

A collection of John’s Illinois Review articles about vote fraud, The Tales of Little Pavel, and his 2021 political satires about current events, Evening Soup with Basement Joe, Volumes One and Two, are available, in either paperback or eBook, only on Amazon.

This touches on how we have exported entire industries overseas in recent decades. While Biden makes speeches praising the resilience and output of American manufacturing, our domestic manufacturing has declined.

I’ve heard people say, that we couldn’t win World War II today, based on how so many products we consume, are now derived from overseas. American industry converted a lot of factories to war production during the war. Many of those factories and companies no longer exist, or no longer produce products, in America. So the industrial infrastructure which helped us win World War II is no longer there, from what I hear people say.

I know there are some issues here, such as Bill Clinton and other presidents, wanting to encourage free market reforms in China, and encourage China to be involved with the rest of the world in economic relations.

It seems we have encouraged free market reforms in China, but it happened in the structure of a totalitarian system which is still officially communist.

Spot on in all regards. Fortunately the exodus from China is underway and the rate is accelerating - but while it will remain a manufacturing powerhouse Vietnam, Poland, Malaysia, Mexico, and even the US in specific areas will benefit. Xi declared economic war on Korea and Samsung moved smartphone production to Vietnam and Hyundai sold it’s chinese factory - so it’s not just a US vs China phenomenon.

The problem is, the economic infrastructure and supply chain clusters that have developed over the past 20-30 years in China will be impossible to replace even in the medium term. But it seems that unlimited expansion in China is no longer the default and as China struggles with a declining population and the demands of the new middle class that has been created, its competitive position will suffer, in addition to all the other factors that the pandemic exposed.

Interesting article.

China is a corporation’s dream. No environment or labor laws. Docile desperate workforce. They would love to have that here in the US but they don’t, so they go to China.

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