Going To College For Science When Youre Bad At Math Ignorance Will Lead to an Economic China Syndrome – Outsourcing to China

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Ignorance Will Lead to an Economic China Syndrome – Outsourcing to China

A popular topic to talk about is the globalization of business. The terms international companies, multinationals and exporting seem to be in every edition of the Wall Street Journal.

A popular complaint among many Americans is that outsourcing to China has a negative effect on the United States. Unfortunately, most of us who live in what used to be the “most powerful and respected country on the planet” are often easily convinced by vote-seeking politicians that China is bad for the American economy.

This is easy to say, but hard to justify when you consider the facts.

China’s economic expansion and its growing trade and investment in the United States have resulted in a Chinese and American economy that are largely interdependent. My father used to say that numbers lie and liars figure. While that may be true, based on my research, I say thank goodness for Chinese trade with us…and wonton soup.

The purpose of this article is to identify the significant areas where this interdependence has been beneficial to the US economy and where China’s growth has had a positive impact on all US citizens.

Fact no. 1: cost savings resulting from the outsourcing of manufacturing and services

The phenomenon of outsourcing manufacturing and service sector activities to markets such as China used to be a consideration for American companies facing the challenge of cutting costs. Now outsourcing is a necessity. And I can promise you that companies that don’t outsource are putting American jobs at risk.

China’s abundance of low-cost labor ensures that almost any industry can achieve higher rates of return even after transportation and export fees are considered. China’s cost advantage translates into a 70% savings over US wages.

– While China’s low-cost infrastructure leads to foreign direct investment (FDI) in China, the massive goods and services produced are primarily destined to be re-exported to other markets. China’s artificial exchange rate controls ensure that while its vast labor pool provides returns, its exchange rate creates cost advantages to ship these goods and services to the US at prices that manufacturers based in the USA they simply cannot satisfy.

American consumers benefit greatly from cheap products from China. The many US companies that have outsourced production and manufacturing to China have remained competitive and profitable, and are therefore able to repatriate earnings to the US and pay corporate taxes on those earnings. Hey Mr. and Mrs. Main Street…what would you do without your 4 TVs, 3 DVD players, awesome stainless steel fridge and scooter in your garage?

It’s economics 101: A company that makes more profit, largely due to lower expenses as a result of outsourcing some operations to China, pays more taxes because of a larger amount of taxable income. That certainly helps the US economy, doesn’t it?

Fact #2: Consumer spending and its effect on the economy

American consumers have benefited from a glut of cheap Chinese manufactured goods and services for many years. These goods provide the basis for much of the consumption activity of the American economy. This has kept consumer sentiment positive and mitigated the effects the recession may have had on US consumer spending. Yes, George W, we are in a recession.

Please note the following:

– “Cheap goods and easy access to them are critical to consumer sentiment, which can help the U.S. economy overcome economic contractions related to slowing job growth and contractions in gross domestic product (GDP)”.

Stephen S. Roach -Chief Economist, Morgan Stanley

– According to Catherine Mann of the Institute for International Economics, the globalized production of computer hardware, meaning the offshoring of computer-related manufacturing, has accounted for as much as 30 percent of the decline in hardware prices. The resulting productivity gains encouraged the rapid spread of computer use and thus added about $230 billion in additional cumulative GDP between 1995 and 2002.

– Even when cheap Chinese products are imported, there are benefits to the US economy. As most American consumers realize, most of the products they buy at Wal-Mart are made in southern China by low-skilled workers who work long hours. In fact, of Wal-Mart’s 6,000 suppliers, 5,000 are Chinese. When they buy these cheap imports, American consumers save billions of dollars each year. A report by Morgan Stanley claims that US consumers have saved $600 billion in the past decade through Chinese imports.

– Not only are new opportunities created for American workers, but also for shareholders. Starbucks CEO Howard Shultz announced that by 2008 the company expects to have more coffee shops in China than in the United States. Similar stories can be told for McDonalds, KFC, Coca Cola or Motorola. There are now 94 KFCs in the city of Shanghai alone, and the number is increasing every month. On a sunny Sunday afternoon, they are often packed with people, young and old, enjoying sandwiches and sundaes.

Fact #3 – Effect of Chinese investments in the US

China’s global investments in US companies rose to $9.8 billion in 2007 from $36 billion in 2006, according to Thomson Financial. By comparison, US investment in China was $2.6 billion in 2007, down from $3 billion in 2006, China’s Ministry of Commerce said.

Chinese manufacturers, especially those that import parts or raw materials from the US, are also looking into establishing assembly operations in the US. They would save on shipping costs, said Karen Shen, Washington State’s trade development representative in Shanghai since 2000. The U.S. is now trying to capitalize on growth in China:

– More than 30 US states have staff or representatives in China, according to the Council of American States in China. With the US economy slumping and unemployment rising, even some harsh critics of China and outsourcing are courting Chinese money. In March, a delegation from Missouri included the governor, two US senators, the mayor of St. Louis and two dozen other officials and businessmen, with the goal of getting Air China and Chinese officials to back Missouri’s bid to create an air cargo hub in St. Louis.

– Few states have been as aggressive in reaching out to China as South Carolina. In recent years, 10 Chinese companies, including appliance maker Haier, have expanded to SC and created about 2,000 jobs, said John Ling, managing director of the South Carolina China office .

Fact #4 – Impact on US interest rates

China realizes that in order to maintain its own economic growth and stability it must continue to support US economic policy through continued purchases of US securities that allow it to artificially control the value of its currency relative to the US dollar. China’s monetary policy seems indicative of a generalized foreign policy that is increasingly aligned with the demands of the US market itself.

China’s use of the partial peg of the yuan to the dollar may act to support its export market. However, in order to secure this artificial valuation, he bought a lot of US securities, helping to keep interest rates low, again greatly benefiting the US consumer, especially in their recent housing boom. .

So it can be said that after American consumers pay for Chinese imports, much of the capital is recycled in the form of investments in government Treasuries. That foreign capital, in turn, helps keep interest rates low, so American consumers can continue to enjoy cheap financing for cars, homes, and college educations. As long as the Chinese have confidence in their US investments, this positive cycle will continue for the foreseeable future.

I wonder how many people who criticize outsourcing to China on a daily basis even consider this point…a point of great magnitude for all Americans.

If the US economy collapses and Americans stop buying Chinese goods, this will exacerbate the US decline, as China first stops buying US bonds that have inflated the American bubble, and then to sell them This would be an “uh oh” moment.

Fact #5 – Benefits of rising living standards in developing countries

The population of developing countries such as China and India, who now outsource jobs from America, are experiencing a rapid increase in their wages and living standards. In the process, they became more Americanized, resulting in a demand for American goods and lifestyles. Thus, according to the McKinsey Global Institute, for every dollar outsourced, the economic gain for the United States as a whole is between $1.12 and $1.14; while the country to which a job is outsourced earns only 33 cents.

I’m no mathematician, but that seems like a 3.45x advantage.

Ok, speaking of supposed truth, without researching the basic facts… to me a 345% advantage over China and other developing countries sounds like a good thing and not something to be feared.

Do you want something to be afraid of? Fear the fact that American students are not only falling behind, they are falling far behind other countries in math and science. Maybe Mr. and Mrs. Main Street should stop watching their imported 56-inch TV for a few hours a week so they can help their kids with their homework.

We will most likely never (notice I said never…we can’t come back to me in 2025 and point out my mistake) ever be internationally competitive in manufacturing. Therefore, we must continue to lead the world in innovation. We must also realize that one of the key commodities of 2008 is information. Imagine life today without Google.

Please, American citizens, realize that this great planet is actually a small trading town. We are interdependent and trust each other. Many people who claim that China and specifically outsourcing to China is a bad thing take offense to being called racist.

I think we can all agree that a basic ingredient of racism is naivety and false assumptions. As we welcome people as one, we welcome economies as one, based only after fact-finding. my fear Such false assumptions by untrained politicians (that’s not an exaggeration, is it?) will negatively affect the positive relationship with China. We are talking about a real China syndrome.

This article is the first of a two-part series. The next article will address the responsibility of American companies that outsource labor to produce quality products, as well as to ensure the ethical treatment of workers.

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