Doing Business in China:Why do Americans blame the Chinese?

Posted in April 14, 2010 ¬ 3:13 amh.jeff4,278 Comments »

Recently, I saw an article in a USA newspaper blaming  China for some of the economic problems in the USA. At my age I do not get upset easily, however, when I heard American's who never been to China placing the blame on China for our joblessness, trade deficit and other economic problems, i became roiled. As an American doing business in China, I have firsthand experience.

At times, no matter what publication or media outlet I read I can only shake my head in wonder at the information presented to readers on the economic topic of China. If you owed someone nearly $1 trillion, would you constantly antagonize them with everything that you ‘think’ they are doing wrong in their personal life? That said, here are some basic facts about China related to US Jobs and currency valuation, and since I am not an economist, I have to dumb this data down in order that I can understand the issues: Timothy Geithner and team continue to claim currency manipulation by the Chinese: Fact: -Between July 2005 and July 2008, the Renminbi (RMB) rose 21% against the dollar, where it had been pegged since 1997 -The trade deficit in that period (according to the US Census Bureau)

INCREASED to $268 billion -Economists predicted that Americans would reduce purchases of Chinese products with an appreciating RMB, but between this same period, US imports increased by 39%. -If, in a down economy as we have now, prices are increased by result of appreciation of the RMB, higher prices will prevail at Wal- Mart, Target and other retailers who depend heavily on Chinese produced goods.

This may amount to a regressive tax that would in effect harm lower-income Americans the most -Did anyone notice the trade ‘deficit’ reported by China in March? Chinese are stealing US Jobs, according to the union controlled discussions on Capitol Hill: The best way for me to understand this is in the form of a widely published study by 3 economist’s from UCAL. -Each iPod costs $150 to produce. Only $4 of this cost is Chinese ‘value add’ as most of the other content comes from components made in other countries, including the US.

When these are imported from China where they are ‘assembled’ by Foxconn (>400,000 employees in their Shenzhen facility), but $150 is counted as import from China adding to the trade deficit and inflating job loss figures -These imported iPods support thousands of US jobs including engineering, design, finance, manufacturing,, marketing, distribution, retailing etc.

A tariff on such products would penalize non Chinese companies and the workers who create most of the iPod’s value, thus reducing sales of the product. With lower sales, how many other jobs would be lost in the value chain in USA? Reduction in profits for Apple to support R&D? What would the impact on music and video download, iPod accessories and the myriad of other iPod spawned businesses? This is just one US product from one US company, so imagine the compounding effect. Now, here comes my opinion: I am in China every 6-8 weeks, and I have met with Beijing and Shanghai US Consulate Generals about bilateral trade issues, presented to Chinese Chamber of Commerce in Shenzhen, worked with SOE’s, China based (US) VC’s, local, provincial and central government agencies and many smart Chinese employees of mine. If we think China’s growth in the last 30 years is extraordinary, just wait for the next 20.

I believe that the US needs to stop the blame game and figure out how a successful cooperative effort can improve the US position in the global economy with China as an ally. We need to face the fact that the US cannot compete with 1.3 billion (counted, likely 1.5 actual) workforce that is happy with middle class (family) wages of ~$12,000 US, and stop whining about political matters that are irrelevant to economics. America’s workforce needs to recreate itself to move further up the value chain, and recognize (as I have witnessed) that China lacks in many areas of expertise where the US can capitalize, and improve our current position as a global economic powerhouse. Let’s not be the modern Romans.


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