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Wednesday, October 19, 2005

Is the Fate of America to Be Based on the 'Fate of Made in the U.S.A.'? Is China the Spoiler?

The trouble with competing in business in an envious world is that the lean and hungry will do almost anything to relieve you of everything you have, including your life. The same can be said governments, especially those that are willing to exploit and kill portions of their populations in the global race for economic supremacy. The population of the United States has enjoyed an unprecedented period of peace and prosperity that was unheard of in world history. Naturally prosperity has come at the expense of less fortunate nations, some of which are surging ahead, no holds barred, intent on winning the economic war and bringing down the United States.

The players in this war are various. The most obvious is China. Although parts of China remain poverty stricken, the economy of China is surging ahead and is expected to soon overtake that of the United States. They have accomplished this 'miracle' by exploiting the environment, their enormous population of peasants, by exacting obedience to Communist and communal rule, and by partnering with strange bedfellows.

One of the most troubling is our neighbor to the south: Mexico.

Chinese President Hu Jintao’s recent visit to Mexico City to meet with Mexican President Vicente Fox marked a new beginning in Sino-Mexican relations with both leaders signing agreements in the areas of bilateral trade, mining and energy. “The motive of my visit is to deepen the strategic association between Mexico and China,” president Hu Jintao told journalists gathered at the Presidential Palace.

The trip to Mexico was the first for Hu Jintao since becoming head of state and was designed to promote further business and diplomatic cooperation. Earlier this year, Chinese vice-president Zeng Qinghong and Jin Qinglin, chairman of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), visited Mexico to discuss the development of bilateral ties.

This strange development is unexpected because Mexico "has traditionally viewed China as a key contributor to the country's sub-part economic growth,due in large part to China's use of cheap labor to outmaneuver Mexico in the U.S. exports market." Bilateral cooperation is now being pursued because Mexico has realized that a partnership is more realistic than attempts to battle China's cheap labor that is often done in Laogai or slave labor camps.

The proposal is to set up Mexico as a "Singapore-like way-station" for U.S. bound Chinese goods," China is now Mexico's second-largest trading partner behind the U.S. and direct flights between Mexico and China have begun as millions of Chinese citizens are expected to travel overseas to Mexico as well as other destinations. Worrisome is also Chinese attraction to Mexico's oil. China is now flexing its muscles, willing to "intrude into America's backyard."

American companies in competition with China and other countries that use "cheap labor" are going down the tubes. One of the latest of note is Delphi Corp., the "largest U.S. auto parts company." It appears that perhaps manufacturing in the United States is "becoming extinct."

Manufacturing in the U.S. used to account for one in three jobs; now it represents one in nine. When held in comparison to business and human resource practices by countries such as China, American manufacturing can't be profitable.
China uses the Laogai system; the American manufacturing system, especially the UAW, GM, Ford, and Chrysler
have crafted contracts that turned the companies into mini-welfare states, providing above-average hourly wages (today's average for all manufacturing: $16.60), rich fringe benefits and strong job security. For example, laid-off UAW workers essentially get full salary and benefits indefinitely. With limited competition, companies could pass along common labor costs to consumers and compete on styling and performance. No more. The protected market has given way to imports and foreign firms with nonunionized U.S. plants. Price competition is fierce.

Now comes the reckoning. The market and the welfare state collide. According to the UAW, Delphi is seeking deep cuts in both wages (to about $10 to $12 an hour) and total labor costs including fringes (to $20 to $25 an hour). In an interview with the Wall Street Journal, Delphi chief executive Steve Miller indicated that once retirees become eligible for Medicare at 65, he wants to eliminate any supplementary health insurance coverage.

The envy of the world, many American workers have lived high on the hog. With China at America's border in Mexico, Venezuela, and Cuba, will it be possible to maintain the style of life to which we have become accustomed? Can American manufacturing survive? Vladimir Lenin once stated: "The road to America is through Mexico."

Millions of the world's citizens pour through the borders every year. Many come to work, but high-paying manufacturing jobs that used to lure Americans and illegal entrants alike are no longer there. Is it because American labor has priced itself out of the market?

Although Americans can't compete effectively with slave labor and the sweatshop conditions found in other countries,
The fate of American manufacturing lies largely in American hands. Of course, some labor-intensive production will go abroad. But in many industries, job losses and cost-cutting -- though devastating to individuals -- can sustain production and restore profitability. The U.S. steel industry now produces more than in the 1980s, though it has lost two-thirds of its jobs. Elsewhere, innovation and high-value manufacturing should create jobs. Consider United Technologies. It makes jet engines, elevators, air conditioners and helicopters. Despite extensive foreign factories, much skilled manufacturing remains here. On one popular helicopter, air frames are assembled in the Czech Republic; the high-value electronic systems and blades are mainly American.

But one giant unknown clouds everything: China. Until now, its booming U.S. exports have mostly displaced exports from other countries. As China modernizes -- moves into more advanced industries -- this could change dramatically. The combination of low wages, a huge market and an artificially low currency confers staggering competitive advantages. They constitute a powerful magnet for foreign investment in many sectors, whose output could subsequently be exported. Unless the currency rises substantially, the United States could lose many industries that, by all other economic logic, it shouldn't. Therein lies the real threat of extinction or something close to it.

Increased competition between the U.S. and China for oil and markets signal increase in prices and perhaps a degrading of the style of life for many in the United States.


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