Monday, March 29, 2010

The China Recall Syndrome

As China warns the United States that America has more to lose in a "trade war," we are left scratching our heads. Last year we were in the trade hole with China to the tune of $227 billion, better than 2008's $268 billion deficit, but no reason to send in the brass bands. (That's almost a half a trillion deficit in two years.)

What is more insulting is that often the products that China sends our way are not just poorly made, but downright dangerous. The Fisher-Price lead-painted toys recall cost that company between $40 and $70 million. If you think that kind of hit made China's manufacturers sit up and take notice, you're mistaken.

In the last month or so, everything from children's bicycle bells with lead paint to power packs that can burst into flame and explode, to kids hoodies with dangerous drawstrings around the neck to remote controls for gas-heated fireplaces and hockey sticks have been  recalled. (By no means should these be compared to the massive recall of Toyota products, but the response of Toyota - weak in spirit, but concrete in action - should be compared to the companies from China, which has no response except for the recalls. There were also salmonella precipitated recalls of food here recently.)

The biggest culprit in China is the incredibly low net profit margin on goods produced there. It runs in the range of 1 to 2%. Developed countries run around 6 to 9%.

This is part of a grand scheme to capture ever larger shares of markets and amounts to legalized dumping. Couple that with the manipulation of China's currency, the yuan, and we have a prescription for conflict. Toss in the impossibly low wage scales in China and the perfect import-export storm has developed.

This is a liberal cause because for decades now, through Democratic and Republican administrations, the expression Free Trade has been bandied about as if the universal panacea. Simultaneously, unions have been denigrated and demonized by economists from slightly left of center to the far right. Only truly leftist economists have completely understood and explained the value of unions.

Germany, which is second now to China in total manufacturing exports - having just slipped from first place - is about 34% unionized in its industrial sector. The United States runs about 12%. So, the issue isn't unions and efficiency.

Additionally, unions prevent under-priced, shoddily-made goods from entering the country they operate in. Multinationals with the assistance of their minions in government relentlessly persecute unions. Yet, consistently, right to work states, mostly in the American South, have consistently lower wages and purchase a higher proportion of goods from countries like China. Why are we racing to the bottom?

Right to work? How about right to compete on an equal footing? How about the right to a decent wage and legitimate benefits? Our governments have sold out our manufacturing workers.

This, in spite of the fact that American factories are the most efficient in the world along with Japan's and Germany's.

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