Hearing On China’s Industrial, Investment, and Exchange Rate Policies: Impact on the U.S. (China)

USCC-Frank Vargo, Vice President for International Economic Affairs, National Association of Manufac ^ | Frank Vargo

[maui_hawaii]

....Manufacturing accounts for over 80 percent of all U.S. exports of goods. America’s farmers will export somewhat over $50 billion this year, but America’s manufacturers export almost that much every month! Even when services are included, manufacturing accounts for two-thirds of all U.S. exports of goods and services. If the U.S. manufacturing sector were to evaporate or become seriously impaired, what combination of farm products together with architectural, travel, insurance, engineering and other services could make up for the missing two-thirds of our exports represented by manufactures?

The answer is “none.” What would happen instead is the dollar would collapse, falling precipitously -- not to the reasonable level of 1997, but far below it -- and with this collapse would come high U.S. inflation, a wrenching economic downturn and a collapse in the U.S. standard of living and the U.S. leadership role in the world. And that, most basically, is why the United States cannot become a “nation of shopkeepers.”

But manufacturing is definitely at risk because for too many years it has been taken for granted, and burdens and costs have been imposed on manufacturing that are now being reflected in falling unemployment and growing outsourcing. The evidence has been building for some time. A recent study commissioned by the NAM’s Council of Manufacturing Associations, Securing America’s Future: The Case for a Strong Manufacturing Base, prepared by noted economist and former Council of Economic Advisors member Dr. Joel Popkin, documents the serious challenges facing manufacturing and the erosion of our industrial base.

But even more importantly the study examines just how important manufacturing is for supporting overall economic growth, technological innovation and a high standard of living for American workers. The study is clear in its warning that “if the U.S. manufacturing base continues to shrink at the present rate and the critical mass is lost, the manufacturing innovation process will shift to other global centers. If this happens, a decline in U.S. living standards in the future is virtually assured.”

This must not be allowed to happen...

[maui_hawaii]

The link above is to a PDF. Its 14 pages so I didn't post it all...

This is one small part of the hearing held today and one small part of this gentleman's comments.

There were several other speakers, some of which were arguing the other side of the issue...

[maui_hawaii]

bump

I am only partially through some of the available texts of the speakers...

I have found some interesting and others promoting the rediculous.

[maui_hawaii]

from another speaker...

First and foremost, there is an enormous confusion over the character of the so-called Chinese export threat. In my opinion, the world has formed an erroneous impressionperception that newly emerging Chinese companies are capturing global market share with reckless abandon. In fact, nothing could be further from the truth. For more than a decade, the real export dynamic in China has come far more from the consciousdeliberate outsourcing strategies of multinational corporations headquartered in the developed world than from the rapid growth of indigenous Chinese companies. overOver the 1994 to mid-2003 interval, China’s exports essentiallybasically tripled from US$121.0 billion to $365.4 billion. It turns out that "foreign-invested enterprises" – Chinese subsidiaries of global multinationals and joint ventures with industrial-world partners – have accounted for fully 65% of the total increase Chinese exports over that period. In other words, China’s increasingly powerful export machine has the stamp of America, Europe, and Japan stampedwritten all over it.

[maui_hawaii]

The author in post #3 above goes on to say....

This is hardly an example of China grabbing market share from the rest of the world. Instead, it is more a by-product of the strugglesearch for competitive survival by high-cost producers from the industrial world. Last year, a record US$52.7 billion of foreign direct investment flowed into China, making the country the largest recipient of FDI in the world. This inflow did not occur under coercion – it was entirely voluntary. A high-cost industrial world has made a conscious decision that it needs a Chinese-based outsourcing platform to increase productive efficiencies for its own competitive survival. Dismantling the RMB peg would destabilize the very supply chain that has become so integral to new globalized production models. Ironically, it would be a serious negative for those same economies – Japan, the US, and Europe – that have led the way in the rush to Chinese outsourcing. By putting pressure on China to change its currency regime, the industrial world is working at cross-purposes – runs the risk of , squandering the fruits of its own efforts. Fear of the so-called China export threat completely misses this critical point. The power of the Chinese export machine is more traceable to "us" than it is to "them."

It will definately shake things up, but thats good. Whats going on now is based around unsound economics. That shake up is EXACTLY what we are aiming for...

[A. Pole]

China’s exports essentiallybasically tripled from US$121.0 billion to $365.4 billion. It turns out that "foreign-invested enterprises" – Chinese subsidiaries of global multinationals and joint ventures with industrial-world partners – have accounted for fully 65% of the total increase Chinese exports over that period. In other words, China’s increasingly powerful export machine has the stamp of America, Europe, and Japan stampedwritten all over it.

Even so 35% is tremendous achievement for China. Multiplier effect and physical location of other 65% will do more over the time.

[Malsua]

The bulk of foreign investment at this time is to China.

The dollar amounts are misleading for quite a number of reasons.

It's a small percentage of the US GDP. However, those imports when adjusted to the retail numbers don't jive.

A pair of Vietnamese Nike shoes costs Nike a few dollars. Those shoes sell for $60+ US.

A plastic toy that comes to the US costs that company a few dollars or less...and sells for $30 or significantly more.

Those high margin products "cost" the US in very tiny percentages of GDP...however they make up the BULK of the market.

The upside, the dollars and the profit stay in the USA.

The downside, (if you call it that) is that the profits go to the top folks in any company.

How does this ripple? First, when a guy has all the money he needs, what does he buy? Financial instruments. At this time, he pumps money into financial instruments. Stocks, bonds, whatever. The result....low interest rates for everyone. The upside for that guy? He doesn't need to hire more people...the economy is on an uptick...but his extra $2/hour employees in Malaysia are happy to take it.

When you factor in Chinese labor, the labor costs drop to a rate that is almost non existant as a labor component.

Many folks will claim "the cheap labor lowers prices"

And the answer...it does! However, it doesn't come down to the price the labor cost would have indicated. In fact, the prices do not ever reflect the labor cost any longer. They are so inflated, the labor cost becomes less thatn 5% of the total cost.

If labor cost were truly reflected in products...you could buy a shirt at Disney for $2 or a VCR for $15 and a DVD player for $18.

[maui_hawaii]

The guy in post #4 is scared of a shock to the system...when in reality that is exactly what China itself is.

China is undermining the efforts we've made over the past 50 years. I say we should put it back to the way it was...

[maui_hawaii]

That whole argument about financial instruments and keeping interest rates low is fake. Its a lie not founded in reality.

Its quoted so people who want to do what they do can try to defend themselves. Thats all.

[Malsua]

>>That whole argument about financial instruments and keeping interest rates low is fake. Its a lie not founded in reality.
Its quoted so people who want to do what they do can try to defend themselves. Thats all.
<<

Uhm, no, it's not wrong. It certainly drives down interest rates.

Foreign investment in US bonds drives down interest rates.

It may be the defense of free traitors who seem to think running an 11 billion a month trade deficit with one country is a good thing, but I don't agree.

However, there is no doubt it drives down interest rates.

[maui_hawaii]

Maybe I should clarify myself...I am referring directly to the Chinese ownership of treasury notes...

They own barely 2% of any debt the US has...

The make up and nature of that debt leads me to believe that they aren't doing diddly in that ballpark.

[Malsua]

>>Maybe I should clarify myself...I am referring directly to the Chinese ownership of treasury notes...
They own barely 2% of any debt the US has...

The make up and nature of that debt leads me to believe that they aren't doing diddly in that ballpark.
<<

Let me clarify a bit then.

Chinese debt is a currently a small portion of those buying us bonds.

The real issue is that as European countries are backing off on the debt to the US, China is the biggest uptaker.

The USA is running such a deficit around the world that the EU countries are not buying so much in dollars. China, Malaysia, Thailand are the primary buyers who are buying up the difference.

Considering that 10% of China GDP is only under 1% of the US GDP, one has to look at the real numbers. China's undervalued RMB is trying to energize the country. If fact that cheap Yuan is doing it. China is exploding in capitalism. They are having growth that the US hasn't seen since the turn of the the century.

China is where the USA was 100 years ago...We can hope the worker protections come as they did here in the US. Time will tell.

-Mal

[ETERNAL WARMING]

If this happens, a decline in U.S. living standards in the future is virtually assured.”

Where's this guy been? It's already happened to half of the American workers. And that statement is backed up by the IRS tax codes. Not many have an enviable standard of living anymore. It's now hand to mouth and paycheck to paycheck.

[harpseal]

Ping

On or off let me know.

maui_

Thank you for this link. I encourage all to go to the souce and read every word.

[harpseal]

That 65% of teh Chinese exports driven by multinationals investing in China will be Chinese owned factories whenever China so decides. We all were on the thread detailing the new Chinese rules on the joint ventures and the ownership of technology.

Of course the US taxpayer because of the guarantees of political risk insurance issued by OPIC and teh export import bank and other government entities will be forced to reimburse these companies for their Chinese investments which are expropriated thereby saoking teh same taxpayers thrown out of work by these investments.

[harpseal]

China is where the USA was 100 years ago...We can hope the worker protections come as they did here in the US. Time will tell.

China is not where the USA was 100 years ago. The USA had effective rule of law and did have in place electoral systems that insured popular input into governmental decisions. The Sherman anti-trust act was in place and had been used by T. Rosevelt to curb some of the more egregious abuses of corporate power.

There already were some worker safety rules in place, especially on the railroads and in the electrical industry. Child labor laws were enacted in many states. There was no direct control of the economy by the Government nor direct control of the government by large corporations. The USA was a hotbed of innovation and discovery. The Wright brothers and Henry Ford were starting out. In short such comparisons are facile and hardly worth considering especially becuase of the lack of a First Ammendment in China.

[Eric Paul]

Sorry but I think he is more correct than incorrect. First China does have the rule of law yes it is not as strong as in the US right now but neither was it as strong in the US then. Right now it is becoming stronger in China as two recent intellectual property decisions (One in Shanghai and the other in Beijing) in favor of US companies show.

I will give you the democracy bit although there were still many voting problems in a large portiion of America that would not be straightened out until the Civil Rights movement. The Sherman Anti-Trust Act was and is so vague that its use and misuse has plagued America since its inception. Just look at Microsoft now.

In China there are also some safety rules in place. In fact the governement recently decided that the death penalty should apply to the use and distribution of a particular rat poison. The US had recently gone off the gold standard 100 years ago which I think qualifies as direct control of the economy. In addition with the 1920 Transportation Act the government kept alive the railroad. If those don't qualify then surely the "new deal" does. I think that the Teapot Dome Scandal of the 1920s does show that their also was control of government by business.

I think the impending launch into space of a manned rocket the first step on the way to moon (something the US space program has admitted that they cannot now do) and later mars is definitely a hotbed of discovery. As to innovation building the two fastest train lines in the world is only one of the ongoing innovations the Chinese are working on.

Finally, yes there is no first ammendment in China but at this time they are actually moving toward greater freedom of speech and the press (a condition of their entry into the WTO) while in 1919 the US Supreme Court decided that all speech is not free with the famous shouting fire in a crowded theater decision.