Made in U.S., Shunned in China

[wabmester]

I remember the days when Asians loved everything American. Now that they make most of our stuff, they're not so impressed.

"The only U.S.-produced items that I can think of that exist in large quantities in China are dollar bills," said Matthew Crabbe, the managing director of Access Asia Ltd., a market research firm.

NY Times Article

This trend disturbs me greatly. IBM's PC division is now a Chinese corp. US brands like Ford and GM are near death. Boeing has serious competition from Airbus. Levis and Coke are apparently falling out of fashion. What does that leave us? Microsoft? Oh, my.

How can this possibly bode well for our economic future?

[SteveR]

Add pharmaceuticals to this list. India and China will be producing most of the generic drugs we will consume in the US in a few years. It is hard to complete with their low material costs, low labor rates and very favorable treatment of these companies by their governments. The US, EU and Japan cannot compete and are already making deals with Indian and Chineese firms. With the constant pressure on Western pharma. costs by Medicare, Medicade and large buying groups prices will continue to fall for generics. Branded drugs will also start to feel the pinch as they go off patent or as they are challenged for their patents.

It will be a rough ride and unless the US firms can compete on service (unlikely because big buy groups demand low prices and service already) or on some special sector or distribution advantage, they are sunk.

[laurence]

It's ironic that the "heartland" likes to decry Hollywood when it's the one thing we still export around the world. Services and entertainment, that's where we've apparently taken our stand.

[BigMoneyJim]

Quote:

Originally Posted by wab This trend disturbs me greatly. IBM's PC division is now a Chinese corp. US brands like Ford and GM are near death. Boeing has serious competition from Airbus. Levis and Coke are apparently falling out of fashion. What does that leave us? Microsoft? Oh, my. How can this possibly bode well for our economic future?

IBM didn't want to be in a commodity business, so they sold off their hard drive and PC divisions. Arguably cars are a commodity, and who here doesn't agree that generally American cars suck compared to Japanese cars? Boeing/Airbus is a heated battle. There are some problems with the A380, but they'll probably iron them out. Boeing went for a smaller plane for their next release thinking passenger carriers won't want mammoth planes. Cargo companies don't necessarily want mammoth planes, either. They're good for long haul international routes but most air cargo is time sensitive and it's more economical to fill a smaller plane and get it gone rather than sit a large plane until it's full or send a large plane out half empty. Boeing may yet win out on the next generation plane. Don't know much about Levis and Coke. I don't see how Microsoft isn't doomed internationally (and ultimately domestically) WRT operating systems and office software, but I've thought they were on the ropes before and they always manage to pull through.

As for how it bodes well for the economy keep reading for a laugh. GM and/or Ford go bankrupt, screw their workers royally but reorganize much leaner and in-the-black and manage to create a few desirable and reliable models. Boeing sells more planes because airlines hate the mammoth A380 and the Boeing fits at any existing gate and existing maintenance hangars. IBM sells higher margin hardware and maintains its reputation as a reliable quality vendor that's worth the price for its products. IKEA and the Gap become popular in China as their economy grows and their workers earn more. Either Microsoft pulls another ace from its sleeve and maintains its dominance everywhere or Red Hat and IBM become major beneficiaries of MS's decline by selling enterprise virtualization hardware and consulting services in traditional form or in prepackaged application servers that are easily customized for the end user by a couple hours of a low-paid tech's time.

Those aren't predictions, by the way. I'm way to smart; that is I know I'm far too stupid to predict what happens next.

EDIT: By the way, Laurence, how did you get my driver's license photo?

[Michael]

The Chinese government is subsidizing exports to keep their people employed until China develops a robust internal market. Then they will stop the subsidies, the dollar will fall, and the trade balance with China will become more equal.

American workers in subsidized industries will suffer until then. Of course, another country may take up the subsidy game when the Chinese stop.

[wabmester]

Right, theory says that a weaker dollar will fix our trade deficit.* *Of course, the dollar fell dramatically over the last few years (recently recovering), and our trade deficit continued to increase the entire time.

Theory also says that cheap imports are good for our economy.* *It means that our producers can get cheap components and get fat profit margins on the finished goods we produce.* *Unfortunately, that hasn't been working so hot for IBM computers, GM cars, Boeing planes, etc.* *And China is becoming more interested in producing finished goods rather than mere components.

I don't understand why IBM couldn't stay in the commodity PC business.* *Dell was able to pull it off.* *Now, Lenovo has dropped prices and looks like they might be able to take market share away from Dell.* *Why couldn't IBM do that?

Why can't some American buy up some of the empty car factories in Detroit and compete successfully against Japanese imports?* * Japan has proven they can maintain the fattest margins in the industry even with US factories and the associated cost burden of US workers.

Our current situation is similar to our fears of Japanese domination in the 1980's, but the trade deficit is much deeper and more sustained now, and the industries being hit are more widespread.

What saved us from the Japanese was a combination of factors.* *Their equity bubble popped, which put a huge drag on their economy.* *The dollar dropped, making our goods more attractive.* *We entered a recession, which increased our savings rate and reduced our imports.

Do China, Japan, and Korea have equity bubbles that will pop and save us this time?* *What good will a weakened dollar do if we don't make anything to sell?* * Personally, I think we need a very deep and long recession to save us.* *Something that will force American companies to stop going after just the low-hanging fruit and start building stuff again.

[mikew]

There were three points that caught my eye in the article. The first is that China is becoming a assembler for the rest of Asia. This means it doesn't matter what happens bilaterally with China the assembly can take place anywhere. So no help for America. I don't see China as subsidizing industry. I see it more as supporting a national objective while playing within the rules of the game. Something the US Government should do a little more of.

The second is that the Chinese are seeing American products as crappy, especially the design. European and even Chinese brands are viewed as better. In this they are following the Japanese and Koreans. There are not many american consumer products here in Japan besides coke, mac, and credit cards* But I guess that is American culture now.

The third point is that the Americans don't even seem to be trying. So even if there is an opening to balance out the trade deficit, American business wouldn't be able to step up.

[Michael]

Quote:

Theory also says that cheap imports are good for our economy.

The fed prevents cheap imports from benefiting consumers. If imported televisions go down in price, the fed swings into action to increase the price of medicine to compensate. The net result is no gain for the consumer, but the government does get to print more free money to spend on pork.

Its just another scam to get more hidden taxes.

[wildcat]

Well, I happen to think stuff produced in China is garbage. From my experiences the Japanese are the only ones who seem to produce a higher quality product.

[Gone4Good]

Yup, the U.S. has been transitioning to a nation of burger flippers for a few decades now - I suspect we always will be.* *

The creative destruction of competitive markets is extremely difficult and scary for those individuals and industries affected.* But after decades of hand wringing about the hollowing out of the US industrial base, the US economy is still the envy of the world.*

Consider that in 1900 41% of the US population was employed in agriculture.* In 2000 less than 2% were.* I'm sure along the way many a farmer lamented the loss of agriculture jobs to both industrialization and global competition - we're all better for it though.*

[Nords]

Quote:

Originally Posted by wab Right, theory says that a weaker dollar will fix our trade deficit.* *Of course, the dollar fell dramatically over the last few years (recently recovering), and our trade deficit continued to increase the entire time. Theory also says that cheap imports are good for our economy.* *It means that our producers can get cheap components and get fat profit margins on the finished goods we produce.* *Unfortunately, that hasn't been working so hot for IBM computers, GM cars, Boeing planes, etc.* *And China is becoming more interested in producing finished goods rather than mere components.

I don't think that the trade deficit properly recognizes the money being made from intellectual property. *The laptop has a razor-thin margin but the CPU chip and the OS have some of the fattest profit margins known to man. *The CPU & OS profits aren't counted in the trade "deficit".

As for Dell, maybe their current quality-control problems are what IBM saw coming for their own PC business. *They probably couldn't sell out to Lenovo quickly enough, the whole time thinking "Suckers!"

[greg]

wab:

I agree with everything you say. I simply believe we Merkins are just taking the easy way out--until we can't. The Japanese have sucked it up and determined that a manufacturing base (even if it may only make up 20% of their GDP in the future) is critical to their survival. We, on the other hand, only see short-term profits as a goal, with IBM a case on point. The case with GM is far worse. They haven't pushed for the productivity gains like Japan (partially because of union issues unrelated to wage issues) because their profits were used for more immediate and more profitable allocations. They, GM, focuses on low price and profitable financing. At least the Japanese see the world, a future, twenty years out, planning and structuring their economy for that time. (But they too have a debt problem which will come home to roost.)

We, as a national consciousness, worry way too much about our immediate assets going up right now and not enough about our children's future. Our deficit and the trouble our old line industries are currently in is the pure and unadulterated evidence of this behavior.

--Greg

[laurence]

We are also eating the planting corn (did I get that saying right?). One area we should be cultivating insteading of cutting back on is our higher education system. People come from around the world to get an education at one of our universities. If we were to charge what that was worth plus a tidy profit...but instead we make it harder for foriegn students to get visas.

I'm not ready to crown Japan as the economic model. Isn't their prime lending rate still at 0%? Hasn't their stock market been flat for a decade? Aren't they the inventors of the three person shovel just to shore up employment? I hear there is a prectice in Japan of walking quickly from one end of the office to the other and back again holding a pile of papers, just to look busy.

BigMoneyJim, what are you talking about? That's my license picture! Are we related?

[wabmester]

The Japanese may have "interesting" customs, and the Chinese may have an "interesting" government, but that doesn't seem to stop them from producing goods that the world loves to consume.

We still have a few aces in the hole ourselves, and we still have the world's reserve currency, but as an ER, my concern is with long-term trends. Automobiles represent something like 5% of GDP. Losing that sector would be painful to our economy. The optimists insist that for every lost sector, we gain some new ones. But we're in a global economy now. Why aren't those new "gains" reflected in our current account balance?

What would it mean for us if we have continuous erosion of high-dollar exports? What would it mean for us if the dollar lost its status as the world's reserve currency?

Fun stuff to ponder. And maybe I'll increase my Asian stock exposure in the meantime (Japan looks like they may finally be due for a little upward RTM).

[laurence]

Quote:

Originally Posted by wab What would it mean for us if we have continuous erosion of high-dollar exports? What would it mean for us if the dollar lost its status as the world's reserve currency?

Now that's something that scares me. I'd expound on that but my daughter is struggling for control of the keyboard. :P

[mikew]

Quote:

Originally Posted by wildcat Well, I happen to think stuff produced in China is garbage. From my experiences the Japanese are the only ones who seem to produce a higher quality product.

Japanese are moving towards only producing the really top of the line stuff in Japan. The rest is from China. Same story with Korea and Taiwan. Sorry to say, but companies send some some crappy stuff to America because Americans will buy anything as long as the price is low enough.

Quote:

Originally Posted by Laurence Aren't they the inventors of the three person shovel just to shore up employment?* I hear there is a prectice in Japan of walking quickly from one end of the office to the other and back again holding a pile of papers, just to look busy.

You have to seperate office productivity and factory productivity. I read a couple of years ago that the Japanese factory productivity was 20% above the US but the office productivity was 20% below the US.

Quote:

What would it mean for us if the dollar lost its status as the world's reserve currency?

I read in a couple of places about six months ago that the oil countries wanted to sell oil in different currencies than dollars. That would kill the US as the reserve currency and all of these exported dollars in govt reserves would come back on the market kinda like gold.


Mike

[haha]

Quote:

Originally Posted by Laurence It's ironic that the "heartland" likes to decry Hollywood when it's the one thing we still export around the world.* Services and entertainment, that's where we've apparently taken our stand.

Excellent point. Many of the movies might be junk; and there may be legitimate differences of opinion about movieland mores, but it sure earns the bucks.

ha

[Telly]

A few comments...

GM produces the Buick Regal in China, for chinese consumption. It has been a big hit. Over a few years it has become chinese-ized, becoming more in-tune with market requirements there. US EPA requirements, NHTSA safety requirements, etc. are all really irrelevant to the chinese market.
With the extremely low labor costs in China, coupled with the total lack of worker rights of any kind whatsoever there, it would not be economically feasible to build them in North America then export them to China.

Airbus Industries - The real name should be "propped up by Euro governments airplane company". Here's some news dated Oct. 7th. on their funding on the latest new development plan:
"Airbus said it had received 'legally binding' government pledges to fund its newly launched A350 jet program".
The A350 is designed to rival Boeing's long-range fuel-efficient 787 Dreamliner.
"You can be assured that we and the governments made sure that the letters we got are legally binding", Airbus CEO Gustav Humbert said, adding that "details should be and will be negociated throughout the next two months." The letters were from France, Germany, Britain, and Spain.
There are also other governments involved with funding AI, like Italy, Greece, etc.

Funny how little squawk there is about the Euro government airplane company in the media. Remember all the squawk about the US Gov. underwriting the loan made to the Chrysler Corporation back about 1980? And the US Gov. wasn't even loaning the money, much less giving it away to them. They would just enter into it if Chrysler defaulted on the loan... which they didn't... they actually paid the loan back way ahead of schedule. All hail Lee Iacocca, what a guy. Need some like him today, that's for sure.

China vs. America - If America is going to be a has-been soon, why are all these Chinese people flooding over here? They aren't coming here to learn, and then go back to China for the greater glory of the motherland. They are coming here to STAY! *Hmmm, I wonder why. Don't they realize what great opportunities they are missing in China today and tomorrow? *Seems they would know better than us!

What foreign companies are actually making money in China? As of a couple years ago, it was very few. Companies had spent a lot of money to set up shop in China, then get wound up with red tape (hey, I just made a funny, Red Tape, get it? * ). Time dragged on, and nothing profitable was happening. Of course, the real reason they may have been allowed to be there is for the PLAlocals to learn and borrow the technology.

[sgeeeee]

Quote:

Originally Posted by Telly . . . China vs. America - If America is going to be a has-been soon, why are all these Chinese people flooding over here? They aren't coming here to learn, and then go back to China for the greater glory of the motherland. They are coming here to STAY! *Hmmm, I wonder why. Don't they realize what great opportunities they are missing in China today and tomorrow? *Seems they would know better than us! . . .

It used to work that way. For several years now, over 50% of the engineering graduate students in most US colleges have been from other countries. But then they stayed and worked in the US, became US citizens, contributed to US economy, ... Now, since 9/11 it is very difficult for many of them to get permission to stay. So we are training the next generation of techno-geeks then forcing them to go home and set up companies there.

[mikew]

There was an interesting article in the November Harvard Business Review. It was about keeping foriegn expats. But the message was that there is now opportunity in the home countries of these people where there wasn't 10 years ago. Also some of the best *US educated people are going back to their homes. They want raise their kids near their family and they may have limited career advancement in the US.

Mike