Thursday, May 3, 2012

The Threat of China

I believe the U.S. has put itself into a terrible position regarding China. The situation would concern me with any nation, but I’m particularly concerned because it is China. We forget that China is a communist country, and it views us as an enemy. China spends billions on the military, and its military budget has increased by double digit percentages each year for quite some time. Why would China increase its military budget when there’s no apparent threat from any country except what must be a perceived threat from the US?

They spy on the U.S., try to steal our intellectual property, look the other way at the sale of pirated movies, music, and other items, manipulate their currency to their favor, and don’t play according to the rules of international commerce. In foreign policy, they support dictators from Syria to North Korea. Domestically, they are notorious for human rights violations of all kinds, they persecute Christians and other religious groups, force abortions if a woman becomes pregnant with a second child (the “One Child” policy), and suppress free speech.

Of course we can’t expect all countries in the world to be like us, but the Chinese government is so egregious in these areas that we shouldn’t be doing business with them at all. But we do, and I think it is to our peril. The US, being na├»ve as usual, thinks that if we do a lot of business with them, we will become so interdependent that it’s in China’s best interests to cooperate with us and treat us as a friend. Once they’ve had a taste of the prosperity that capitalism brings, they will be a changed society. I don’t buy it. Let’s examine the areas that worry me:

Eroded Manufacturing Base – Dependence on China

Because so many products are now manufactured outside of the US, we have lost manufacturing jobs, our production capacity is diminished, we are dependent on foreign sources for much of what we use, and we have an unfavorable balance of trade with the rest of the world, especially China.

This erosion of our manufacturing base and resultant loss of jobs will make any economic recovery long in coming. We have become a nation of shopkeepers (or should I say a nation of Wal Marts), so even when the economy recovers, it will be a different world. Many of the jobs are low-paying part-time positions in retail, usually without benefits.

China Holds Huge Amount of US Debt

What happens to all the money we send overseas to purchase foreign-made products? China and other countries invest that money in US debt, thus keeping the US from going bankrupt. China owning so much US debt makes us vulnerable to them. If China doesn’t roll over that debt when the debt instruments come due, the US would be in serious economic jeopardy. Of course if the US economy took a catastrophic hit, we wouldn’t be able to purchase Chinese-made goods, so they would be in trouble too.

So the US and China are linked together in this interdependent dance, but I believe the US shouldn’t be so dependent on a country that views us as an enemy.

Implanted Viruses in Electronics

There are suspicions by reliable sources (who have testified before Congress) that the Chinese have implanted viruses in the electronics they manufacture. These viruses could be activated remotely and cause a mass collapse of computer systems, communications systems, the electric grid, etc. While this may sound far-fetched – and I hope it is – this concern is not coming from wild-eyed conspiracy theorists but from experts.

Since quality control and oversight of Chinese-made good is lacking, such a scenario is entirely possible. I wonder how much testing of imported electronics really takes place?

Pollution and Use of Natural Resources

With the Chinese economy growing at a fast rate, pollution has increased tremendously. China is constructing electric power plants at a furious rate, and most of them are coal-fired. As China becomes more prosperous – thanks in large measure to us – they are buying more cars, causing even more air pollution. Their demand for petroleum products is causing upward pressure on crude oil.

Unsafe Products – Wild West of Manufacturing

China is the “Wild West” of manufacturing, with little quality control and oversight. Cheaply made, defective, and occasionally dangerous products are imported into the US from China. Some American importers, concerned only with profit, don’t bother to oversee production, don’t make quality assurance a condition for buying a Chinese company’s product, and don’t test goods coming into the US. Of course some high-end electronics such as TVs and iPhones are made in China, and they are of good quality, so it can be done.

However, for the most part Chinese made goods may be cheaper to buy, but they don’t last as long. As a result you must replace an item sooner than you would with a quality-made US product. This is false economy. Unfortunately, there isn’t much we can do about this situation I’ve described, except maybe the following:

(1) Enact laws that penalize companies that export jobs overseas. By “penalize” I mean increase the corporate taxes they pay so any savings is offset by higher taxes. I’m not sure how this could be done, and it might be too little too late.

(2) Enact laws that reward companies for moving operations back to the US, such as a jobs credit.

(3) Enact laws that force better quality control of products entering the US from overseas, and levy stiff penalties for companies who are found to have imported defective products into the US without adequate testing.

(4) Enact laws that penalize US-owed companies whose foreign subsidiaries are found to be polluting air or water. Standards would have to be determined as to what constitutes polluting in a foreign country.

Maybe by enacting the laws I outlined above we could at least reduce the advantages of producing goods overseas, reduce pollution, and level the playing field.