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Declining China and the Idiocy of Protectionism

May 14, 2010 By Leave a Comment

The idea that China is going to overtake the USA in anything important has always been laughable.

Why Factories are leaving China

As costs climbed in Taiwan two decades ago, Ben Fan moved his lighting factory to take advantage of China’s cheap labor. Now, with Chinese wages on the rise, he’s moving again. “It’s just like what happened in Taiwan,” says Fan, chairman of Neo-Neon Holdings, which sells lamps and lighting fixtures to big retailers including Home Depot (HD), Target (TGT), and Wal-Mart (WMT). “Chinese don’t want to work in factories anymore.”

So Fan is expanding his factory in Vietnam, where wages are $100 a month, one-third what he pays in China. He plans to shift 85 percent of his production across the border, and by December he’ll have 8,000 workers in Vietnam—up from 300 a year ago—and just 5,000 in China, down from 25,000 in 2008.

Over the past two years, millions of jobs have moved to China’s interior or elsewhere in Asia as factory owners try to cut costs. In Guangdong, the mainland’s top exporting province, wages have almost doubled in the past three years, and more than half the factories can’t find enough workers. The number of migrants who traveled to coastal provinces for work fell by 9 percent last year, to 91 million. “This lack of labor will only get worse,” says Willy Lin, chairman of the Textile Council of Hong Kong, a trade association.

Here are the free trade facts.

1. Cheap labor gets things built and manufactured.

2. Capital will flow to finance cheap labor.

3. If you try to prop up local expensive labor, you merely keep that labor artificially and relatively rich at the expense of neighbors who no longer can benefit from cheaper goods. Protectionism makes all of us poorer.
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If you read the article above properly, you will notice two important items.

1. To get rid of any bad effects of “globalization,” the only solution is to globalize even faster.

2. America, if it got over its ridiculous education system and union mind-set, could conceivably become the “high-quality” manufacturer of first resort, given its very effective and mature economy. Build it best, not cheapest, and the world will pound a path to our products.

Filed Under: Economics, Education, Free Trade Tagged With: , ,

The reports of US demise are greatly exaggerated

February 20, 2010 By 1 Comment

There is no “Peak Energy.”

Tech-Driven Natgas Boom Shifts Energy Balance Of Power To U.S.

A new technique being used to drill through a type of rock known as shale has led to a surge in domestic natural gas production over the last three years and enabled the United States to overtake Russia recently as the world’s No. 1 producer of natural gas.

As a result, we are seeing a remarkable turnabout in energy geopolitics: as U.S. natural gas reserves have soared thanks to advanced drilling methods, Russia’s goal of establishing a world gas cartel patterned on OPEC has collapsed.

How big of a development is this?

Think back to 2003, when America’s demand for natural gas was outpacing supply. Production from gas wells on the Outer Continental Shelf had fallen by 50%, and there was no surplus capacity in the U.S.

Gas prices had doubled in less than a year, and scores of petrochemical companies, in need of cheaper gas, closed their U.S. plants and reopened abroad. Alan Greenspan, then-Federal Reserve chairman, warned that natural gas shortages could harm the U.S. economy.

To make matters worse, Russia began flexing its political muscle, using a dispute over gas prices with Ukraine as a pretext for curtailing natural gas shipments to Western Europe. And Russia, in cahoots with several other major gas-producing countries such as Iran and Algeria, opened a global office for natural gas.

U.S. experts saw the move as the first step toward creating an OPEC-like natural-gas cartel.

Now, fortunately for the U.S. and European countries that rely on Russia’s natural gas, the situation has changed dramatically for the better.

Filed Under: American Decline, Cap and Trade, Energy & Oil Tagged With: ,

More on Declinism

February 10, 2010 By Leave a Comment

Foot-stomping and caterwauling are so much easier than actually accomplishing something.

America On The Rise

For much of the past decade, “declinism”–the notion that America is heading toward a deadly denouement–has largely been a philosophy of the left. But more recently, particularly in the wake of Barack Obama’s election, conservatives have begun joining the chorus, albeit singing a somewhat different variation on the same tune.

In a recent column in TheWashington Post George Will illustrates this conservative change of heart. Looking over the next few decades Will sees an aging, obsolescent America in retreat to a young and aggressive China. “America’s destiny is demographic, and therefore is inexorable and predictable,” he suggests, pointing to predictions by Nobel Prize economist Robert Fogel that China’s economy will be three times larger than that of the U.S. by 2040.

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Rarely mentioned in such analyses is China’s own aging problem. The population of the People’s Republic will be considerably older than the U.S.’ by 2050. It also has far more boys than girls–a rather insidious problem. Among the younger generation there are already an estimated 24 million more men of marrying age than women. This is not going to end well–except perhaps for investors in prostitution and pornography.

In the longer term demographic trends actually place the U.S. in a relatively strong position. By the end of the first half of the 21st century, the American population aged 15 to 64–essentially your economically active cohort–are projected to grow by 42%; China’s will shrink by 10%. Comparisons with other competitors are even larger, with the E.U. shrinking by 25%, Korea by 30% and Japan by a remarkable 44%.

People are the only real resource on earth folks. Please try to understand that.

Filed Under: American Decline Tagged With: , ,

Something Goldbugs and Nationalists can’t understand

February 4, 2010 By Leave a Comment

The Germans, the Russians, and the Japanese, all once struck military or economic fear in our hearts. Now, a bunch lefty and righty whack jobs are trying to tell us the Chinese are going to eat our lunch.

….Not gonna happen.

HOLMES: When China rules the world? Sorry, not likely

China is indeed on the rise. Its economy grew at an 8.7 percent rate last year. It is modernizing its military with a vengeance, thanks to double-digit growth in defense spending each year since the early 1990s. And its official holdings of around $800 billion in U.S. Treasuries lead some to fear that China has become America’s banker.

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Nor should we fear China’s ownership of U.S. debt. As my colleague, Derek Scissors, explains, there is little danger that China will be able to control America’s economy. Official Chinese holdings of Treasuries amount to less than 7 percent of U.S. Treasury debt. That’s a lot of money, unfortunately, but it’s hardly enough to exercise control.

Not only that, China’s ownership of our debt is actually a sign of dependence on us, rather than the other way around. The Chinese have no choice but to buy U.S. bonds, because ours is the only market sound enough and big enough to park their excess funds. Since China’s currency is tightly controlled, they can’t spend those dollars on their own economy. They invest even more in the U.S. economy, thus funneling billions of dollars we spend on Chinese goods right back to us.

Much of the lack of faith in our own economy and ideals are media-driven. The left/media complex needs us to believe that the experiment in freedom has failed so that we are driven to believe that we need government to protect us. It’s a lie.

All we need to do is cut government spending and individualize the welfare state through scholarships for education, personal accounts for Social Security, and Health Savings Accounts for health care.

China is an afterthought that will soon (20 years) be a toothless Dragon unable to fund its rapidly aging population.

Stop buying gold and invest in a business idea.

Filed Under: Clash of Civilizations, Free Trade, Individualizing the Welfare State Tagged With: , ,

We can only defeat ourselves…

December 29, 2009 By Leave a Comment

America is always in some form of decline, and our strength is derived from our ability to address those areas of decline in a dynamic and positive fashion. I’m not as optimistic as Mr. Kotkin is in the article below, but the American Declinists on the left and the right are probably wrong, as they always have been.

Don’t Give Up On The U.S.

If the U.S. were a stock, it would be trading at historic lows. The budget deficit is out of control, the economy is anemic and the political system is controlled by academic ideologues and Chicago hacks. Opposing them is a force largely comprised of know-nothings–to call them Neanderthals would be too complimentary.

Not surprisingly, many Americans have become pessimistic. Two in three adults now fear their children will be worse off than they are. Nearly 40% think China will become the world’s dominant power in the next 20 years, as indicated by a recent survey.

Yet, in spite of everything, I would still place my long-term bets on the U.S. Here’s why:

Read the article. Demography is Destiny.

Filed Under: Culture & Society, Persuasion, Rule by the Elites Tagged With: , ,

More evidence that we face a moral crisis…

September 29, 2009 By 2 Comments

…not a financial one.

The Next Culture War

Our current cultural politics are organized by the obsolete culture war, which has put secular liberals on one side and religious conservatives on the other. But the slide in economic morality afflicted Red and Blue America equally.

If there is to be a movement to restore economic values, it will have to cut across the current taxonomies. Its goal will be to make the U.S. again a producer economy, not a consumer economy. It will champion a return to financial self-restraint, large and small.

It will have to take on what you might call the lobbyist ethos — the righteous conviction held by everybody from AARP to the agribusinesses that their groups are entitled to every possible appropriation, regardless of the larger public cost. It will have to take on the self-indulgent popular demand for low taxes and high spending.

A crusade for economic self-restraint would have to rearrange the current alliances and embrace policies like energy taxes and spending cuts that are now deemed politically impossible. But this sort of moral revival is what the country actually needs.

Brooks nails it on this one. It is immoral for the tax-eaters (SEIU, AFSCME, Teachers and their oily administrative counterparts) to eat the tax payers into oblivion while they suck down pay and benefits only available at the top of the private sector.

Public sector greed equals or surpasses corporate greed, and both have long surpassed the average American’s ability to pay for it. Atlas should merely shrug.

Filed Under: Culture & Society, Unionization Tagged With: ,

More Declinism

November 29, 2008 By Leave a Comment

It’s hard not to buy into the “America in decline” mantra with our financial system imploding around us. But rumors of our demise are STILL greatly exaggerated. Here is one of the latest articles cataloging our fall from power.

Is America’s new declinism for real?

But last week the Scowcroft Institute of International Affairs at Texas A&M hosted a conference designed to discuss the latest, markedly gloomy world view issued by America’s intelligence establishment. Every four years the National Intelligence Council – which oversees America’s baroque collection of intelligence agencies – releases a global trends report, which is given to the new president.

The latest report, published on November 20, has made headlines around the world. The front page of Britain’s Guardian newspaper shouted “2025: the end of US dominance”. For once, the headline is broadly accurate. As the NIC frankly notes, “the most dramatic difference” between the new report and the one issued four years ago is that it now foresees “a world in which the US plays a prominent role in global events, but the US is seen as one among many global actors”. The report issued four years ago had projected “continuing US dominance”.

The NIC report has made people sit up because it comes from the heart of the US security establishment. But it is part of a broader intellectual trend in America: a “new declinism”. This mood marks a complete break with the aggressive confidence of the Bush years and the “unipolar moment”. Its starting assumption is that America, while still the most powerful country in the world, is in relative decline.

In the middle of all of this financial meltdown, it is hard not to agree. OTOH, if America isn’t the world leader, then who is? China?

China fears job riots

China is most concerned about the growing labor unrest, the human resources minister, Yin Weimin, said at a news conference. The increase in unrest has paralleled the increase of business and factory closings and job losses.

Yin noted that in the past two months, some businesses, mainly smaller ones, have been forced to close or suspend production.

Several hundred taxi drivers went on strike Wednesday in Chongqing, in southwestern China, after the government said it planned to put more cabs on the district’s roads, thereby increasing competition, the Gansu Daily newspaper said.

The beginnings of a disintegrating China – Part I

With all of this positive news, who should be worried? My answer: anyone that understands the ripple effect, that’s who! The leaders say one thing to pacify the people while on the streets another world exists. I want to delve into the beginnings of a disintegrating China.

I sat in disbelief reading a recent Shenzhen local paper stating that “Some 9,000 of the 45,000 factories in the cities of Guangzhou, Dongguan and Shenzhen are expected to close down in the next three months according to the Dongguan City Association of Enterprises with Foreign Investment estimates. Those closures would see up to 2.7 million jobs cut as overseas demand for consumer goods and clothes fades.” That’s more than 50,000 a day if you believe official figures, which I do not, and I believe the number is actually higher.

The association says that, by end of January, demand will shrink by 30 per cent, and these are just mainland factories. The Federation of Hong Kong Industries said that about 25 per cent of the 70,000 Hong Kong-owned companies in southern China “could go to the wall by the end of January”. Yet on the very next page I read an article quoting the Ministry of Commerce as stating, “Although it is likely to cause a decline in China’s external demand, our stock market and financial system will not be fundamentally affected”.

I can understand the flip-flopping stories as a means to keep a population from panicking; after all the Shanghai A-shares have declined more than 60 per cent from their bubbly peak at the beginning of the year. The Hang Sang in Hong Kong and the Shenzhen indices are not doing much better. Real estate prices have slipped 20 per cent in the last six months, all of the recent factory closings with many more to come and this is just the beginning of a prolonged feedback loop.

The central government’s plan to reverse a foreign trade decline is to increase domestic consumption, restructure industry and boost innovation to change its economic development mode; that’s fine but first you need to have an expanding domestic economy to do that.

I worry about the moral degradation of our people as much as the next person. The public sector screws the worker out of their future with their obscene pensions and payroll bloat while the rich MBA skanks screw us out of our futures with their opaque debt instruments.

It isn’t pretty.

But at the end of the day, do you really want to bet against America?

Filed Under: Clash of Civilizations, Culture & Society Tagged With: ,