From the Publisher:
The (New) China Syndrome
If you are like me, you have a tendency to measure milestones in your life by any number of things. Almost everyone,
depending on their age, can relate to where they were in life when President Kennedy was killed, when we first landed on
the moon, or the falling of the Berlin Wall. The impact on our society of 9/11 is one that we tragically are still absorbing.
But there are other milestones we tend to carry with us from, of all things, movies. I can clearly remember the first
time I saw Stanley Kubrick’s 2001 – A Space Odyssey. I don’t mean to say that I actually understood it, but I do remember
the experience as if it were yesterday. And there were others as well. One in particular was a 1979 movie called simply
The China Syndrome. It starred Jack Lemon, Jane Fonda (pre-Ted Turner I think) and Michael Douglas. It was a typical Hollywood
number where a young enthusiastic reporter (Jane Fonda of course) uncovers numerous safety violations at a nuclear
energy plant. In the end, there is a huge accident that leads to the China Syndrome. This simply meant that a nuclear accident
could cause a meltdown of the reactor core and literally melt its way through the earth to China. Needless to day, it
left quite an impression and probably played a role in our continuing fear of nuclear power.
Today, we are experiencing a China syndrome of our own and it is, in its own way, just as serious and infinitely more
real. To put it bluntly, I don’t think it is an exaggeration to say that the status of America as the world’s manufacturing
superpower is literally melting and the final resting place is in mainland China. Specifically:
- According to the Wall Street Journal, approximately 3.0 million manufacturing jobs have been lost in the United States.
It is highly unlikely that many of these jobs will come back.
- Manufacturing jobs have declined for a record 44 months in a row.
- Over 21,000 manufacturing plants have shuttered their windows and doors since 2002. A large portion of these plants
were located in small, rural towns that have very little else to rely on for sustaining their existence.
- Our trade deficit with China is projected to reach $130 billion next year.
- The plastics industry in this country went from a $900 million surplus in 2000 to a $1.4 billion deficit in 2002. About
half of that deficit is attributed directly to China.
If it sounds as if I am picking on poor old China, I plead guilty. But, I also want to make a case that, hopefully, is more
thoughtful than an election year sound-bite.
If you haven’t been asleep, you know that each side in the upcoming Presidential election is posturing on what will probably
(barring additional domestic terrorist activity) be the deciding factor in who wins and who goes home. The issue is
purely jobs. The argument, and it is a stretch to call it that, has been reduced to who was for NAFTA and who wasn’t. Of
course, the reality is that NAFTA was largely a bi-partisan effort with the final push for approval coming from President
Bill Clinton who was a Democrat. Funny how memories fade when convenient.
The truth is that the decline in our manufacturing base is due to a large number of factors. For some industries, it simply
makes sense to operate in lower cost, underdeveloped markets. It is also extremely foolish to think that we can protect
our way into prosperity. Whether we like it or not, our economy is global and short of global conflict, that is not likely to
change. What must change is the way we negotiate with emerging economies. And we must understand, to the greatest
degree possible, why we are losing the fight.
China, at the urging of the United States, was admitted to the World Trade Organization. Under that agreement, China has
certain responsibilities to the global community to retain its member status. One example would be that China, by 2008, is
scheduled to allow its currency to “float” against other currencies so that it will be on a level playing field. As it currently
stands, companies that manufacture in China effectively have a government subsidy of 15 to 40 percent depending on what
source you cite. China also routinely ignores simply huge problems with the theft of intellectual property costing tens of billions
of sales to the legitimate producer. And, perhaps most importantly, China does virtually nothing to ensure basic health
and safety to its workers. The stated minimum wage in one area is $56 per month. One worker noted in a Wall Street Journal
article was injured by toxic substances in a plant, hospitalized for 11 months and received no benefit of any kind for that
period. He was not even being paid the minimum $56 per month.
I think we need to realize that China, as well as other emerging economies, has the legitimate goal of building its manufacturing
base. In many ways, this could be a good thing. American companies could greatly expand their potential markets,
China would, hopefully, be more likely to institute democratic reforms and the world would be a safer place.
The problem is that we seem so eager to “bring them along” that we are letting the wool - or perhaps silk - get pulled
over our eyes. China is very good at attracting new investment in manufacturing capacity but somewhat slower in allowing
imports for sale to the general population. Now, in an incredible turn, China has instituted the “China Compulsory Certification”
program. On the surface, this is a regulatory program designed to ensure that imports are “safe” and will not
harm the populace. Remember the guy who was injured and in the hospital for 11 months? After digging a bit deeper, I got
a list of products that could be “held at the border and subject to penalties” and that list covered such inherently dangerous
products as wire, electronic components, etc. This is a crude, effective ruse to keep companies from shipping in components
that could be...made in China.
On the other side of the ledger, the WTO has put in place a five percent penalty tariff on U.S. exporters for not passing
some essentially minor tax legislation it considers egregious. The penalty will grow one percent per month and covers
everything from agricultural products (cotton) to toys.
Simply put, we can’t get out of the global game, but maybe we need to get a bit tougher on the rules. Why should China
have years and years to comply with basic expectations of capitalism and human dignity while we get hammered with exorbitant
penalties for minor (and temporary) infractions? We have to understand that we have to protect our own interests
even in free market economies. Fair is fair. And if we don’t, as one writer said, “there’s never going to be a factory in
China that will sponsor your kid’s Little League team.” DBJ
Scott Coopwood
Publisher
