Sunday, August 14, 2005

The China Syndrome

Human Events: China-Mart takes over
U.S. corporations decided that the way to get rich was to destroy their American consumer base by closing their American factories, throwing their U.S. employees out of work and hiring Chinese, instead. The Chinese work for less, you see, and free trade economists say lowering costs makes us better off.
What U.S. corporations and the free trade economists overlook is that giving Americans' jobs to foreigners raises foreign incomes and lowers American incomes. When credit cards and home equity lines are maxed out, there will be nothing to support the U.S. consumer market. The American corporations who moved their capital and technology to China will have to find new customers.
Maybe the Chinese government will let the relocated U.S. firms sell to Chinese customers, or maybe the Chinese government will let the U.S. firms go bankrupt. The latter favors China's strategic interest. Chinese businessmen will purchase the bankrupt firms, and Chinese businesses will sell to Chinese customers.

The fundamental issue here, is if the American consumer is broke he can't subsidize the dysfunctional economies of Mexico and China (both of which try to deal with a massive rural underclass by exports to the US (and in Mexico's case by directly "exporting" the rural underclass). Not to mention, US businesses will discover they do not have customers for their goods. Once China does not have to play nice to keep the US market open, the US companies will leave and their intellectual property will stay. We might try to retool, but we will be competing on the World market with "Smokestack warez" , Chinese goods identical in most ways to our best stuff but at a much lower price (when you don't have much in the way of R&D or labor costs, it's amazing what you can do).

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