Wednesday, December 21, 2011

China update

I've been sitting on this one for a while, but it's a pertinent update to pass along given my past rants on the topic of China and the trade wars that our incompetent lawmakers insist on instigating. Per Mish Shedlock (citing Bloomberg),
China announced plans to impose anti-dumping duties on some vehicles imported from the U.S. after failing to block a U.S. tariff on Chinese tires. 
Punitive duties will be as high as 12.9 percent for autos from General Motors Co. (GM) and 8.8 percent for Chrysler Group LLC, China’s commerce ministry said today on its website. The U.S. units of Bayerische Motoren Werke AG (BMW) and Daimler AG (DAI) will face duties of 2 percent and 2.7 percent respectively, it said. 
“The move shows that China is always capable of intervening politically in its markets,” said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler. “The automobile industry is very dependent on China for growth, and there’s doubts about the pace of future expansion.” 
The move to increase import levies comes three months after the World Trade Organization rejected China’s appeal of a ruling backing U.S. duties on tire imports.
China has already shown us that they are more than willing to call our bluff if we insist on engaging them in a trade war, and this is the start of that process. American companies and individuals will suffer greatly from any trade war, whether instituted via direct tariffs or via wrong-headed "currency manipulator" legislation.

Let me say this one more time, with emphasis--our manufacturing industry has been outsourced to China not because of their unfair labor or currency practices, but because of massive domestic inflation caused by overly accommodative monetary policy from the Fed and fiscal policy from Congress.

When commodity and real estate prices (not to mention college tuition rates and health care costs) march inexorably higher year after year, American workers have no choice but to demand higher and higher wages from their employers. Companies therefore have a choice--cave to those demands and raise their end prices to compensate, or else take the jobs elsewhere where workers are able to work for less. They've increasingly chosen the latter, which keeps core inflation statistics down but also guts our nation's manufacturing base.

While there are certainly exceptions, the majority of American companies would prefer NOT to outsource these jobs if given the choice. For a company, outsourcing manufacturing jobs to China means giving up a significant amount of control over intellectual property and quality control, while also dramatically increasing production lead times and therefore making inventory management significantly more difficult. These are NOT GOOD THINGS from a business standpoint, and businesses will therefore only do it if they feel as though it is their only choice. Increasingly, this is the feeling they receive when assessing the potential costs of hiring an entirely American labor force.

If we want to get our manufacturing base back, we need to cut the crap with our unrealistic monetary and fiscal policies. Otherwise, any trade war will have only negative impacts on our domestic economy--recession, inflation, decreased corporate profits, you name it--there is literally no good outcome if we continue to insist on engaging in trade wars with China and other nations.

The trade war has already begun--how far are we going to let it go before addressing the real problems that plague our economy?

(h/t Mish Shedlock)

No comments:

Post a Comment