Imagined in America
After spending last week talking with Hong Kong entrepreneurs about a bill, just passed by the U.S. Senate, to clear the way for tariffs on Chinese exports to America if China doesn't revalue its currency, there are three things I have to say. One, I really hope the people pushing this bill do not give up. Two, I really hope the people pushing this bill do not succeed. And, three, I really hope no one thinks this legislation will make any sustainable dent in our unemployment problem, which requires much more radical rethinking.
I support this legislation in theory because China needs a wake-up call. I know, China never responds to in-your-face pressure — not immediately. But it began revaluing its currency upward in 2005, the last time the Senate brandished a big stick. The fact is, China's strategy of using low wages and a cheap currency to build up an enormous export-led growth engine — while using its huge market to lure and compel companies to transfer their next-generation technology to China as well — is now hurting both sides. China is spending tons of money manipulating its currency downward and, in the process, creating domestic inflation and a real estate bubble, which is weakening its competiveness. Meanwhile, it is hair-raising to hear stories in Hong Kong about the number of American companies feeling the need to transfer advanced technology to China under pressure from Beijing officials — and being afraid to complain to Washington about unfair trade practices. Yes, China's leaders, fearing unemployment, will revalue their currency at their own pace. But if pushing this bill even marginally slows the pace of American firms shifting operations here, and gives others more time to adapt, it will be worth it. But, Lord in heaven, do not let the House pass this bill. That would trigger a trade war in the middle of our Great Recession. We tried that in 1930. It didn't end well. Worse, today it would distract us from thinking about the real issue: How do we adjust our labor market to the simultaneous intensification of globalization and the I.T. revolution, the biggest thing happening in the world today? The intensification of globalization means more parts of any product or service can be produced anywhere, and the intensification of the I.T. revolution means more parts of any product or service can be created by machines and software. I am typing this column on a Dell laptop that says "Made in China" on the bottom. In fact, it was assembled in China — but the design, memory board, screen, casing and dozens of other parts were all made in other countries. And while the machine says "Made in China," the lion's share of its value and profit goes to the firm that conceived the idea and orchestrated that supply chain — Dell Inc. in Texas. We are never going to get those labor-intensive assembly jobs back from China — the wage differentials are far too great, no matter how much China revalues its currency. We need to focus on multiplying more people at the high-value ideation and orchestration end of the supply chain, and in the manufacturing processes where one person can be highly productive, and well paid, by operating multiple machines. We need to focus on "Imagined in America" and "Orchestrated From America" and "Made in America by a smart worker using a phalanx of smarter robots." In total value terms, America still manufactures almost as much as China. We just do it with far fewer people, which is why we need more start-ups. But we also need to stop thinking that a middle class can be sustained only by factory jobs. Thirty years ago, Hong Kong was a manufacturing center. Now its economy is 97 percent services. It has adjusted so well that this year the Hong Kong government is giving a bonus of $775 to each of its residents. One reason is that Hong Kong has transformed itself into a huge tourist center that last year received 36 million visitors — 23 million from China. Their hotel stays, dining and jewelry purchases are driving prosperity here. The U.S. Commerce Department says 801,000 Mainland Chinese visited the U.S. last year, adding $5 billion to the U.S. economy. More Chinese want to come, but, for security reasons, visas are hard to obtain. If we let in as many Chinese tourists as Hong Kong, it would inject more than $115 billion into what is a highly unionized U.S. hotel, restaurant, gaming and tourism industry. Another idea officials here offer is that the United States invites Chinese firms to invest in toll bridges, toll roads, and rail systems across the United States, in partnership with American companies. They could build them, and operate them for a set number of years, until their investment pays out, and then transfer them to full U.S. ownership. It may be the only way we can rebuild our infrastructure. Yes, China manipulates its currency and market access. But the reason we are so vulnerable is that we have no leverage. We don't save; we overconsume; we don't plan; and we have not invested enough in infrastructure and education. Dealing with a superpower like China without leverage? Let me know how that works out for you. |