The China Price Syndrome

Disclaimer: I’m surrounded by conspiracy theorists who believe the impending economic dominance by China is driving everything from decisions in the War on Terror to the choices we make in fighting global warming. Of course articles like this by Ted C. Fishman don’t help:

China is everywhere these days, influencing our lives as consumers, providers, citizens. It has by far the world’s most rapidly changing large economy, and our reactions to it shift just as quickly. China is at one moment our greatest threat, the next our friend. It siphons off American jobs; it is essential to our competitive edge. China is the world’s factory floor, and it is the world’s greatest market opportunity. China’s industrial might steals opportunities from the developing world, even as its booming economy pulls poorer countries up (lately it has been getting credit for helping Japan out of its slump too). China exports deflation; it stokes soaring prices. China will boom; it will bust.

Fishman is not as alarmed by all this as some folks. He concludes the above statements by noting, “The truth about China is that, like all big countries, it is full of real contradictions.”

This is an excellent, albeit lengthy, article by the way, so if you get the chance I’d recommend it. It’s got plenty of food for thought, like “Increasingly, it is what Chinese businesses and consumers choose for themselves that determines how the American economy operates.” But the bit that jumped out at me as most worthy of consideration within the context of the conspiracy theorists’ worries was this:

China now offers the world a labor supply with depth unlike anything ever seen. In a recent policy brief for the Carnegie Endowment for International Peace, Sandra Polaski, a former State Department special representative for international labor affairs, writes that to put things in perspective, ”if all U.S. jobs were moved to China, there would still be surplus labor in China.” That fact highlights what is most sobering about China’s booming economy: it can force down the value of work in any job that is at all transferable.

In American business this is called the ”China price.” It is the price American suppliers to other American businesses have to match to keep their customers. It is the price at which Chinese manufacturers can deliver the same goods and services. Last November, the Chicago Federal Reserve Bank noted the complaints that ”automakers have reportedly been asking suppliers for the ‘China price’ on their purchases.” It also observed that U.S. suppliers had been asked by their big customers to relocate production to China, or to find subcontractors there.

It’s not just the loss of jobs in the US this can impact, but also the quality of our work lives, and thus our “real” lives. Consider what’s happening in Europe, for example:

Europe Reluctantly Deciding It Has Less Time for Time Off

Two weeks ago…[Michael Stahl, a technician at a cordless telephone factory in the town of Bocholt] got a rude jolt, when his union signed a contract with his employer, Siemens, to extend the workweek at the Bocholt plant to 40 hours from 35. Weekly pay remains the same. The new contract also scraps the annual bonuses every employee receives to help pay for vacations and Christmas expenses….

After nearly 27 years at Siemens, Mr. Stahl, 42, feels he has no choice but to put in the extra time. Like millions of his fellow citizens, he is struggling to accept the stark new reality of life in a global economy: Germans are having to work longer hours.

And not just Germans. The French, who in 2000 trimmed their workweek to 35 hours in hopes of generating more jobs, are now talking about lengthening it again, worried that the shorter hours are hurting the economy. In Britain, more than a fifth of the labor force, according to a 2002 study, works longer than the European Union’s mandated limit of 48 hours a week.

Europe’s long siesta, it seems, has finally reached its limit — a victim of chronic economic stagnation, deteriorating public finances and competition from low-wage countries in the enlarged European Union and in Asia.

I’ve always resented the extra vacation time Europeans got, but I’ve also always hoped eventually the US would find ways to copy their model. That hope has vanished.

The effect of the “China Price” on jobs in developed countries (what I’m terming the “China Price Syndrome”) will affect not only the types of jobs Americans can get, but the benefits those jobs offer. In other words, the quality of life for American manufacturing workers (and soon other types of workers) may continue to decline.

I really don’t see how anything can be done to stop the impact of the China Price either. Even if China becomes as expensive as the US and Europe (something their labor surplus makes unlikely), there are other, even poorer nations in Southeast Asia and Africa right behind them to keep the trend spiraling downward.

The trick to staying ahead of the China Price Syndrome, at the moment, seems to be getting yourself a job that is not transferable. Don’t count on those being the good, well-paying jobs though:

By now most of us know that China is the factory floor of choice for the world’s low-road manufacturing: it assembles more toys, stitches more shoes and sews more garments than any other nation in the world. But moving up the technological ladder, China has also become the world’s largest maker of consumer electronics, like TV’s, DVD players and cellphones. And more recently, China is climbing even higher still, moving into biotech and high-tech computer manufacturing. No country has ever made a better run at climbing every step of economic development all at once.

Like all tides, however, there’s no point in yelling at this one:

In a stable China, where its great resource, its people, are allowed to work and spend money in a reasonably well functioning market economy, the growing place of China in a global economy cannot be legislated away with tariffs, quotas or tax incentives for struggling industries. China’s strengths cannot be altered by changes in the value of its currency or by restricting the flow of foreign investment into the country. By having changed itself, China is changing the world.

That doesn’t necessarily mean things will be worse for Americans as the century — the Chinese century — unfolds. Following World War II, the nations of Western Europe, Japan and the so-called tiger countries of Asia rose from the ruins, aided, not thwarted, by the strength of the American economy. In turn, those economic booms fed our own.

So perhaps we will be as Europe is to us today, and China will be our America.

Oh well, I hear Shanghai is lovely this time of year…