Free Trade With China Isn't

02.1.2005 | Jonathan Leaf | International Affairs | 4 Comments
Two weeks ago Business Week’s cover story was about the threat posed to America’s manufacturers by low-cost production in China. Or, more accurately, the article was about the threat posed to America’s remaining manufacturers. After all, perhaps half of all the goods sold in the United States are currently made abroad, and China is the leader in this trade. The disparity between what we as Americans make and what we consume is now equal to more than 5% of our gross domestic product, and most of that imbalance — which continues to grow — reflects our trade with China.

This raises an obvious question. If our trade gap is so large, shouldn’t our goods be getting cheaper with the dollar’s recent and continuing fall, and won’t that gradually correct our current accounts deficit?

Well, no, it won’t necessarily fix the problem. Why not? China’s currency is fixed against the dollar, and while the Yuan should probably trade at more than twice its current level, China’s leaders aren’t interested in balanced trade and will delay re-valuing their currency as long as possible. The cynical will assume that these fierce Nationalists want to stamp out competing manufacturers in foreign countries and leave the greater part of future manufacturing know-how and capacity in their own hands. Doubtless, there is something to this, but there’s actually a more practical reason for their approach. As China’s farmers mechanize, literally hundreds of millions of Chinese are being thrown off of farms and forced to the cities. China’s Communist Party leadership knows that if no jobs are found for these people that a revolution could easily follow, one that would displace them.

So even though China’s current trade policies make high-quality foreign goods, parts and equipment ludicrously expensive for the Chinese to import, its leaders don’t want to change the value of their currency too much or too fast. Economists have come to call this pattern of U.S.-China trade “the co-dependent relationship”: we want to consume, they don’t want any slowing in their rate of job creation. The result is extremely dangerous for both our long-term economic health and the security of the world.

Most depressions have been caused by illogical government policies, policies not unlike this. The U.S. depression of 1837 was caused by a rampant real estate speculation and the lack of a solid national currency. It took until 1851 for the U.S. economy to show a really strong recovery. Likewise, most economists now believe that the Great Depression of the 1930’s would likely have been brief had Hoover not increased tariffs and more than doubled top U.S. tax rates at the same time that the Fed was pulling money out of circulation. The resulting intensification of the nation’s banking crisis accelerated the country’s skid, and while the banks recovered some under Roosevelt, his initial policies effectively fixed prices and wages – a solution that was itself a problem.

The phrase “free trade” presumes floating, or at least variable, exchange rates. In the absence of this, trade isn’t free. Rather, one side is choosing to play with an extra card up its sleeve. That is our current situation.

Ironically, these policies may actually deter China from developing its ability to produce quality goods. Able as it is to compete solely on price, China is producing the absolute worst products in the world: bad and defective shoes, pants, sneakers, electronics, toys and many other items. Since China can produce at such low cost, it has no need to compete on quality, and, for the most part, it isn’t.

This, meantime, puts pressure on U.S. companies to either move production to Chain or to dramatically lessen the quality of their own products. The effects of this can easily be seen with dress shoes. Johnston-Murphy, Bostonian, Dexter and many other once respected U.S. manufacturers, confronted by the ultra-low-prices of imported junk, have stopped trying to make the quality shoes they once did. In this way, the manufacturers prove again Say’s Second Law of Economics: “Supply creates demand.” The flood of Chinese junk has created a demand for ultra-low-cost goods irrespective of quality and American companies to offer junk of their own.

Furthermore, by allowing China to avoid re-forming its economy we also prevent the country from fixing its largely insolvent banking system. How is that? Well, you see China doesn’t have private banks for the most part. Instead, its leading companies, highly profitable though they are, must put their profits into accounts in Communist Party-controlled state banks. The state banks then in turn loan the money not to the private companies but to money-losing state enterprises. Most of these companies can’t ever repay the loans they’re taking out as they produce junk that even people in China can’t or won’t buy. If these companies don’t pay their debts, what do they do?

These huge state employers serve the Communist Party by keeping tens of millions of workers employed. In the midst of the huge Chinese boom, many Chinese banks have over half their loans marked as non-performing — that is they’re not being paid off.

Any of this sound familiar? Or worrisome?


BOYCOTT CHINESE JUNK! KEEP THEIR PRODUCTS FROM BEING SOLD IN THE USA!
I own two 8KW Duropower generators sold by a front group in california that is made in CHINA.
They are fairly less expensive than those made in the USA and let me tell you, YOU GET WHAT YOU PAY FOR. Well actually,YOU DON’T! They both had serious electrical connection problems, lose wiring, faulty regulators, and on one of them the engine (13HP) developed a rod knock after only 4 hours of running under load!
Finding the makers website in china was a chore too. Getting the resellers in the USA to cooperate was a joke. They are immature and spiteful and after stalling me for two weeks they sent me two faulty replacement parts (regulators) that someone obviously took a pair of pliars to and broke the SCR’s which if bad, the regulator is no good!
They now refuse to help. These people run the website that sells CHINA’s JUNK GENERATORS and other power equipment. Do NOT purchase anything from DEXIN INTERNATIONAL! They are raping,,excuse me,,uh robbing AMERICANS and RIPPING THEM OFF! You can find their website at www.dexininternational.com or www.duropower.com or is that www.CHINESE-RIP-OFF-JUNKHEAPS.com
The main chinese company reports having ISO 9000 certification. Having such a certification means they are supposed to have the highest standards of workmanship, safety and keep to american electrical and engineering standards.
It’s completely false that they even come close to meeting American standards.
I’ve heard other nightmare stories about dealing with duropower.com and Dexin International Inc.
I say DOWN with letting CHINA much less INDIA import their JUNK into the USA. So what if it’s cheaper! It’s crap! DON’T BUY THEIR PRODUCTS!
Something else, I am sick and tired of running into Indians and Chinese and Phillipenes when I call customer support for various services I pay for such as my website Hosting service. Last time I called about my website server being down, some kid in the Philipenes answered and could hardly speak english, was nervous, discourteous and well just plain ignorant and stupid. Useless!
When calling to purchase something from an infomercial, you get baby english talking Indians in INDIA. GIVE ME A BREAK!
WHY DON’T THESE COUNTRIES BUILD THEIR OWN ECONEMY AND LEAVE OURS ALONE!???
GET OUT OF OUR ECONEMY, GET OUT OF OUR POCKETS, QUIT STEALING AMERICAN JOBS FROM REAL AMERICANS AND GET A LIFE!
Gee, do I sound ticked off. YOU BET I AM!
It makes me SICK that other countries are being allowed to lower OUR standard of quality and living!
Our government needs some serious revamping! Beurocratic idiots!
George Brainless Bush and Dick-head Chaney need to be impeeched and put in prison where they belong!
Anyway, there’s my 25 cents worth.
Chinese products SUCK! What ever we can do to stop China from poisoning our econemy and threatening JOBS in America, I'm all for it!

05.27.2006 | Mike Kamotron
I am sick an tired of buying Chinese junk that comes into the house broken, or falls apart in one day. I am going to make a conscious effort to NOT buy things made in China. But, that is going to be very difficult. Thanks to our politicians they have let our industries be shipped out of our country. I would like to be directed to a website that informs me of USA made products. I see JC Penny and Target buy from China. I will think about dealing with these stores.
jb
12.3.2006 | jb
You state that these products are inferior junk and that you get what you pay for, ok fair comment but then you go on to rant about other countries stealing our jobs etc which is all very patriotic sounding, so please explain why you purchased 2 of these so called inferior pieces of garbage and apparently didn't seem to care about US jobs or the US economy. You make yourself sound like a ranting hypocrite where it is ok for you to buy overseas exports just as long as it is dirt cheap and high quality.

Sorry someone had to say it.
12.14.2008 | Danster

Over the past few months , I've been trying to buy only items made in the USA, Canada, or Western Europe, to find anything thats not made in China, India, or Mexico is next to impossible. Most of the products imported into the USA and Canada from those countries especialy China, is JUNK, there is not such thing as quality. The Chineese take an item that used to be made in Canada or the USA, dismantle it, and determine how they can make it as cheap as possible , then sell it back to us.

We have a "throw away " mentality in North America, buy something today, if it breaks down in a few months , toss it in the garbage and buy another one thats also Chineese junk. In our parents and grandparents day consumer goods were built to last, and the public expected what they bought to last.

We the consumer are partialy to blame for the flood of junk from foriegn countries on our store shelves, but more to blame is our goverments, and big busniess. Millions of manufacturing jobs have been lost in North America, because many companies who opereated in North America for generations , have closed their factories laid off workers, moved to China , India or one of those countries where people work for peanuts.

Wal Mart is also a major culprit, they are the largest retailers in the world, almost everything they sell is made in China, other smaller department stores also have to sell made in china junk to compete, even the companies that have stayed in North America, are making products that are not as well made as they used to be, to try and compete with the Chineese market.

Most of all I blame the government for allowing this tidal wave of foriegin junk to be imported into our countries.

I do not trust the Chineese, they have the largest population in the world, are communist and in my opinion they have a plan to destory the American economy. What can we do about it, well some have said dont buy Chineese junk, buy American instead but today thats easier said than done, as almost everting is made in foriegin countries, mainly China.

12.18.2009 | C. Cormier

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