Posted on 04/19/2003 11:48:33 AM PDT by Willie Green
For education and discussion only. Not for commercial use.
My last column (What Not To Learn From Baghdad) argued that while media and popular attention will always focus on dramatic events like wars, it is the day-in, day-out grind of business which over time shifts the balance of power. Commerce can redistribute industrial capacity, capital and technology between rival states, which in turn convert growing national wealth into expanding international power.
In the last few days, more data has been released by U.S. and Chinese sources that further highlight how Beijing continues to surge forward while Washington falters at home despite its recent demonstration of military power in Iraq. Military power is a lagging indicator. Nations need to create an industrial base upon which to build modern combat capabilities. That capability can then persist for years even if its underlying economic foundation starts to crumble. However, once a state starts to lose its economic edge, it becomes ever more difficult and costly to maintain its military advantages.
Last week´s column looked at China´s steel industry. The pattern seen there of meeting growing demand from domestic production is seen in other areas of heavy industry as well. China has become one of the biggest markets for excavators, with sales of more than 17,000 units during 2002. To meet this demand, the Swedish firm Volvo announced last year the establishment of a wholly-owned production facility in Shanghai's Pudong area. For an investment of around $15 million, Volvo will have a capacity of several thousand units per year with initial production focusing on its newest 20 ton class crawler excavators.
American heavy equipment manufacturer Caterpillar has lobbied hard for detente between Washington and Beijing to create a favorable business climate. Its goals are proclaimed on its corporate website “to be a major supplier of earthmoving and mining equipment, diesel and natural gas engines and electric power generator sets in China. Its strategy for achieving that goal includes establishing a manufacturing base in China. China's goal of quadrupling the gross national output and establishing a ‘Socialist market economy´ present great opportunity for companies such as Caterpillar that can invest in and sell to the massive infrastructure development driving much of that growth.” To that end, Caterpillar Xuzhou Ltd., a joint venture between Caterpillar and Xuzhou Construction Machinery Group, was established “committed to being the leading manufacturer of world-class hydraulic excavators and road building machinery in China.” Caterpillar already produces a variety of engines and chassis components in China within other joint ventures.
In an interview with Barron´s published April 9, General Motors retiring chairman John F. Smith, Jr. said Western automotive-technology companies will be looking for Chinese partners to expand operations in the Chinese vehicle market, as well as to meet demand from U.S., European, and Japanese auto makers for lower-cost vehicle parts. GM, Ford and other large auto makers have outlined ambitious goals to purchase billions of dollars worth of vehicle components from China.
One of the main drivers of Chinese growth is the demand for cars, just as was the case in the United States a half century ago. Almost 440,000 cars rolled off Chinese production lines in the first quarter of this year, as manufacturers raced to keep up with sales that expanded by 56 per cent to 1.13 million units last year. Part of Beijing´s desire to increase domestic steel production has been to provide inputs to the auto industry.
Adherents of the “big emerging market” thesis popular among some American “free trade” economists and Clinton administration officials in the 1990s, had argued that the decline in vehicle import tariffs required of Beijing under its World Trade Organization accession agreement would mean a flow of imported cars to China. Instead, Ford, Mercedes Benz and other major foreign automakers are expanding production in China to meet the demand.
This pattern confirms the view of Professor Robert S. Ross of Boston College that, “China, unlike Japan, has the natural resources to sustain economic development and strategic autonomy .... Chinese enterprises, following market forces, will be able to move further into China´s interior to exploit an inexhaustible, inexpensive and relatively reliable labor force.” At the seventh investment and trade fair held in early April at Xi´an, capital of the western Shaanxi Province, 40 of the world's top 500 companies from the United States, France, Germany and Japan attended. Contracts for over $400 million were signed.
While economic stagnation afflicts much of the world, Chinese industrial output has maintained strong growth for 14 months in a row, and in the first two months of this year, the industrial added value increased 17.5 per cent over the same period last year, a record high since 1996.
In contrast, the Federal Reserve reported April 15 that total output from U.S. manufacturers fell again in February and March, continuing three years of decline. The current downturn - despite increased demand growth - is similar to the disastrous period from 1979-1982 that was the worst since the 1930s. American demand is being met increasingly by imported manufactures.
China's foreign trade displayed strong growth in the first quarter, as the export of machinery and electronics products, which account for half of China's total exports, increased 42.1 per cent in the first two months, 20 percentage points higher than the same period last year. The export of new and high-tech products increased 51.8 per cent.
For the United States, the Commerce Department reported on April 16 that for 2002, the U.S. current-account deficit increased by $110.0 billion, to $503.4 billion total, mostly due to adverse trends in trade. Exports of goods were down $36.3 billion in 2002 compared to 2001, while total imports were up $51 billion. There is no way to spin such bad news on both sides of the trade ledger.
Washington´s obsession with trade in the 1990s has failed to advance the nation´s position in the world system, and there is not a single set of trade negotiations now in progress that can reasonably offer any change in current trends. Policy must now shift to the domestic economy by redirecting the efforts of America firms from developing rival industries overseas to reviving capabilities at home. It will take direct presidential leadership on a par with what has been shown in other areas foreign policy to accomplish this goal, but it must be done if the United States is to hold its lead as the world´s most powerful nation.
William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.
When a married ---- excuse me for being so outdated --- living together couple of young adults wants to buy a house, they want a house of their parent, not the house from which their parents has started. An average house built today is 40% bigger than that at in 1950 --- and yet our papers are full of complaints that "fewer people can afford housing."
Our literacy declines but we want the same salary. And then we complain when the corporations prefer the Chinese labor to ours.
Your numbers are wrong. Very wrong.
If you compare apples and oranges is one thing. To compare apples to apples is another.
Apples to apples, China's burden on its population is around 70%.
Seems we will immitate them one day rather than vice versa.
All it does is make them powerful totalitarian states instead of weak ones.
The numbers are from the Heritage foundation.
Our numbers are fake as well. If you take into account layered taxation, Social "Security", etc. our fiscal burden is well over 50%.
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