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US lawmakers forget big profits from cheap labor
By Wang Yong |
October 13, 2011, Thursday
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Print Edition
Print Edition
IN the early 1990s, a top Chinese trade official lamented that China had to sell tens of millions pairs of shoes to the West in exchange for one airliner. Even today, China still has to sell everything cheap in return for the big-ticket items - from aircraft to luxury bags.
Some Westerners wail that Made-in-China products have flooded the Western market and caused a massive loss of manufacturing jobs in the West. But just take a look at how many Boeings and Airbuses take to the Chinese skies and how many BMWs and Mercedes-Benzes take to the roads.
While China of course sells far more shoes and shirts than it buys planes and cars, it does buy Western government bonds, a lot of them, effectively ensuring low inflation in the West despite what economist Joseph Stiglitz calls the "bubble-supported consumption" there.
Besides holding the bag of Western government bonds, China hopes to invest its trade surplus in the West, only to find that in many cases the West fears Chinese investment out of ideological bias against a rising socialist country.
China also hopes to buy more than planes and cars and bags, and again, the West refuses to sell many civilian high-tech products, citing national security concerns.
China does not favor a huge trade surplus with any country.
It has tried - in vain - to buy more from and invest in the West, using the foreign exchange reserves earned through endless days and nights of stitching millions and millions of shoes and shirts.
If "cheap" Chinese currency alone explains China's economic miracle, what about those farmers migrating from abjectly poor countryside to urban sweat shops? Are they not arguably the world's largest and most stable pool of cheap labor that has become the apple of the business eye, which is focused on maximizing shareholder interests instead of public interests?
How could Apple have been such a wild success had Steve Jobs not given a nod to the merciless exploitation of cheap labor in its manufacturing bases across China? How about Gucci?
If the majority of the US Senate really believed that "cheap" Chinese imports have hurt American interests, it could have done better to call upon the world's business leaders to raise pay for Chinese laborers, thus effectively increasing the cost and prices of Chinese imports.
Unilateral tariffs
It's up to the US House of Representatives to vote on an ill-conceived bill that would permit the use of high unilateral tariffs to punish China for alleged currency manipulation.
The US Senate on Tuesday passed the Currency Exchange Rate Oversight Reform Act.
China's currency has appreciated by more than 30 percent since 2005, but Chinese workers' wages have hardly increased - in reality, rising inflation (especially food and housing prices) has eaten into the already paltry pay of the average Chinese worker. And in the case of migrant workers who make Made-in-Chinas possible, pay arrears is commonplace.
Couple that with the reluctance of many foreign and domestic private companies to set up trade unions to protect workers' rights, and you will see how low the cost really is for a Made-in-China iPhone, Gucci or whatever, the profits of which mainly accrue to Western brand owners.
More than 60 percent of China's annual export volume comes from foreign-funded processing business - meaning foreign brand owners have a huge profit from whatever is made in china.
China's currency value has increased steadily over the past five years, but the American unemployment rate has kept rising. The only beneficiary of a more expensive Chinese currency will be the US government, which will effectively dilute the value of dollar-denominated US government bonds in the hands of Chinese.
American workers will not benefit from a cheaper US dollar for at least two big reasons:
1. With devalued US government bonds and other dollar-denominated assets in hand, China will buy less from America, thus causing a real loss of American jobs.
2. As long as the corporate world embraces the philosophy of maximizing shareholder interests, businesses will further exploit poor migrant workers to make up for any loss from an appreciated Chinese currency.
There is a lesson for China, too.
To be fair, China's burgeoning economy has benefited a lot from American-style capitalism that features "bubble-supported consumption."
But bubbles inevitably bust, since you cannot borrow forever to fuel consumption. China should have looked ahead - and not have shifted so many farmers into cities to play into a globalized gala of destructive consumption.
Some Westerners wail that Made-in-China products have flooded the Western market and caused a massive loss of manufacturing jobs in the West. But just take a look at how many Boeings and Airbuses take to the Chinese skies and how many BMWs and Mercedes-Benzes take to the roads.
While China of course sells far more shoes and shirts than it buys planes and cars, it does buy Western government bonds, a lot of them, effectively ensuring low inflation in the West despite what economist Joseph Stiglitz calls the "bubble-supported consumption" there.
Besides holding the bag of Western government bonds, China hopes to invest its trade surplus in the West, only to find that in many cases the West fears Chinese investment out of ideological bias against a rising socialist country.
China also hopes to buy more than planes and cars and bags, and again, the West refuses to sell many civilian high-tech products, citing national security concerns.
China does not favor a huge trade surplus with any country.
It has tried - in vain - to buy more from and invest in the West, using the foreign exchange reserves earned through endless days and nights of stitching millions and millions of shoes and shirts.
If "cheap" Chinese currency alone explains China's economic miracle, what about those farmers migrating from abjectly poor countryside to urban sweat shops? Are they not arguably the world's largest and most stable pool of cheap labor that has become the apple of the business eye, which is focused on maximizing shareholder interests instead of public interests?
How could Apple have been such a wild success had Steve Jobs not given a nod to the merciless exploitation of cheap labor in its manufacturing bases across China? How about Gucci?
If the majority of the US Senate really believed that "cheap" Chinese imports have hurt American interests, it could have done better to call upon the world's business leaders to raise pay for Chinese laborers, thus effectively increasing the cost and prices of Chinese imports.
Unilateral tariffs
It's up to the US House of Representatives to vote on an ill-conceived bill that would permit the use of high unilateral tariffs to punish China for alleged currency manipulation.
The US Senate on Tuesday passed the Currency Exchange Rate Oversight Reform Act.
China's currency has appreciated by more than 30 percent since 2005, but Chinese workers' wages have hardly increased - in reality, rising inflation (especially food and housing prices) has eaten into the already paltry pay of the average Chinese worker. And in the case of migrant workers who make Made-in-Chinas possible, pay arrears is commonplace.
Couple that with the reluctance of many foreign and domestic private companies to set up trade unions to protect workers' rights, and you will see how low the cost really is for a Made-in-China iPhone, Gucci or whatever, the profits of which mainly accrue to Western brand owners.
More than 60 percent of China's annual export volume comes from foreign-funded processing business - meaning foreign brand owners have a huge profit from whatever is made in china.
China's currency value has increased steadily over the past five years, but the American unemployment rate has kept rising. The only beneficiary of a more expensive Chinese currency will be the US government, which will effectively dilute the value of dollar-denominated US government bonds in the hands of Chinese.
American workers will not benefit from a cheaper US dollar for at least two big reasons:
1. With devalued US government bonds and other dollar-denominated assets in hand, China will buy less from America, thus causing a real loss of American jobs.
2. As long as the corporate world embraces the philosophy of maximizing shareholder interests, businesses will further exploit poor migrant workers to make up for any loss from an appreciated Chinese currency.
There is a lesson for China, too.
To be fair, China's burgeoning economy has benefited a lot from American-style capitalism that features "bubble-supported consumption."
But bubbles inevitably bust, since you cannot borrow forever to fuel consumption. China should have looked ahead - and not have shifted so many farmers into cities to play into a globalized gala of destructive consumption.
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