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This is something that most people never consider. But it’s pretty darn obvious. A group of tornadoes or hurricanes will flood, and destroy hundreds if not thousands of homes in the USA. We would watch the sad pictures, and hear the sad stories and they play over and over, and over on the American news media. Yet, where much larger, much more violent storms and typhoons hit China, the damage is minimal. Why?
In this article we explore the prime culprit. Which is the cheap, cheap, cheap flimsy building materials used throughout American homes today, compared to the stone, cement and steel buildings that are common throughout China.
You see, most of the world does not build “American style” homes. You will not find “McMansions” in Finland, or Russia, or in Australia. You won’t find them in the heart of Africa either. They are a uniquely “American” thing, based on material design, local building codes, and big profit margins.
Tornado strike Late 2021
Tornadoes are fearsome things. I’ve lived through them in Indiana, Ohio, Kentucky, West Virginia, Mississippi and Texas – Louisiana.
A deadly late-season tornado outbreak, the largest and deadliest on record in December, produced catastrophic damage and numerous fatalities across portions of the Southern United States and Ohio Valley from the evening of December 10 to the early morning of December 11, 2021. The event developed as a trough progressed eastward across the United States, interacting with an unseasonably moist and unstable environment across the Mississippi Valley. Tornado activity began in northeastern Arkansas, before progressing into Missouri, Illinois, Tennessee, and Kentucky.
Early estimates suggested that the tornado family—identified by some media outlets as the “Quad-State tornado,” due to the storm’s similar characteristics to the Tri-State tornado that occurred 96 years prior—may have cut a path of up to 250 miles (400 km) across the affected areas. If it had been a single tornado, it would have surpassed the March 18, 1925, tornado event (which carved a 219-mile [352 km] path across Missouri, Illinois, and Indiana) in terms of path length.
Destroyed McMansion.
However, storm surveys found that the path was composed of two distinct EF4 tornadoes, with a break in the damage path over northwestern Obion County, Tennessee. Other tornadic thunderstorms affected portions of eastern Missouri, southern Illinois, West and Middle Tennessee, and Western and Central Kentucky during the late evening into the overnight hours of December 11, including four intense tornadoes that hit Bowling Green, Kentucky; Dresden, Tennessee; Edwardsville, Illinois; and Defiance, Missouri. This included a second supercell and tornado family, which produced an EF3 tornado tracking nearly 123 miles (198 km) in Tennessee and southern Kentucky, as well as numerous tornadoes, including three more rated EF3, throughout southern and central Kentucky.
Another destroyed McMansion
At least 91 people are confirmed to have been killed by the tornadoes, surpassing the Vicksburg, Mississippi tornado of December 5, 1953, which caused 38 fatalities, as the deadliest December tornado event ever recorded in the United States. Unconfirmed estimates suggest that the tornado outbreak may have caused over 100 deaths across five states, which would make it the deadliest tornado event in the United States since May 2011.
Destroyed home in Hattiesburg. MS.
In Kentucky alone, at least 77 people have been confirmed dead so far, making the outbreak the deadliest tornado event in Kentucky history, surpassing the Louisville-area tornado of March 27, 1890, which killed 76 people; in addition, one person remains missing and at least 138 injuries have been reported in the state.
Tornado destruction.
Super-Typhoon strike Zhuhai 2019
China has problems as well. There are typhoons, mud slides, massive rains, dust storms, and winter blizzards. The closest thing to a tornado strike like what hit the USA in December 2021 is a typhoon. Let’s look at the real nasty, big bad super typhoons that hit Zhuhai China and compare the damage.
The strongest typhoon to hit southern China in more than 40 years made its second landfall on Friday, authorities said, after leaving a trail of destruction and at least 64 dead in the neighboring Philippines.
Substantial damage to China’s many homes and buildings.
Super Typhoon Rammasun hit the city of Zhanjiang in south China’s Guangdong province on Friday night, local meteorological authorities said, according to the official Xinhua news agency.
Great deal of water damage.
It first made landfall Friday afternoon on Hainan island, packing winds of up to 216km/h, China’s National Meteorological Centre (NMC) said.
The typhoon was expected to bring torrential rains and was the strongest storm to strike the country’s southern regions since 1973, the NMC said.
The damage is substantial, but unlike the damage in the USA, the buildings are still standing.
It claimed its first victim in China soon after coming ashore in Wenchang, Xinhua reported, when a man was killed by debris as his house collapsed.
State-run China Central Television in news bulletins showed images of wind-whipped trees in Hainan and high waves churned up by the typhoon.
“Strong Typhoon Rammasun is too frightening,” wrote one poster on Chinese social media, adding it “came ashore with fierce winds”.
“It’s raining so hard, the wipers won’t help and it’s hard to see the road ahead,” wrote another user riding in a taxi. “The road is full of water and tree branches, and the heavy wind has blown some branches onto the power cables.”
Why does it appear that American homes are so easily torn apart, while China homes still remain standing?
I argue that the reason lies in the basic construction features of American homes compared to the construction features of Chinese homes.
To use the old childhood story of “the three little pigs”; China builds houses out of bricks and stone, while America builds homes out of straw, sticks and paper.
The Three Little Pigs
Once upon a time there was an old mother pig who had three little pigs and not enough food to feed them. So when they were old enough, she sent them out into the world to seek their fortunes.
The first little pig was very lazy. He didn’t want to work at all and he built his house out of straw.
The second little pig worked a little bit harder but he was somewhat lazy too and he built his house out of sticks. Then, they sang and danced and played together the rest of the day.
The third little pig worked hard all day and built his house with bricks. It was a sturdy house complete with a fine fireplace and chimney. It looked like it could withstand the strongest winds.
The next day, a wolf happened to pass by the lane where the three little pigs lived; and he saw the straw house, and he smelled the pig inside. He thought the pig would make a mighty fine meal and his mouth began to water.
So he knocked on the door and said:
Little pig! Little pig!
Let me in! Let me in!
But the little pig saw the wolf’s big paws through the keyhole, so he answered back:
No! No! No!
Not by the hairs on my chinny chin chin!
Then the wolf showed his teeth and said:
Then I'll huff
and I'll puff
and I'll blow your house down.
So he huffed and he puffed and he blew the house down! The wolf opened his jaws very wide and bit down as hard as he could, but the first little pig escaped and ran away to hide with the second little pig.
The wolf continued down the lane and he passed by the second house made of sticks; and he saw the house, and he smelled the pigs inside, and his mouth began to water as he thought about the fine dinner they would make.
So he knocked on the door and said:
Little pigs! Little pigs!
Let me in! Let me in!
But the little pigs saw the wolf’s pointy ears through the keyhole, so they answered back:
No! No! No!
Not by the hairs on our chinny chin chin!
So the wolf showed his teeth and said:
Then I'll huff
and I'll puff
and I'll blow your house down!
So he huffed and he puffed and he blew the house down! The wolf was greedy and he tried to catch both pigs at once, but he was too greedy and got neither! His big jaws clamped down on nothing but air and the two little pigs scrambled away as fast as their little hooves would carry them.
The wolf chased them down the lane and he almost caught them. But they made it to the brick house and slammed the door closed before the wolf could catch them. The three little pigs they were very frightened, they knew the wolf wanted to eat them. And that was very, very true. The wolf hadn’t eaten all day and he had worked up a large appetite chasing the pigs around and now he could smell all three of them inside and he knew that the three little pigs would make a lovely feast.
So the wolf knocked on the door and said:
Little pigs! Little pigs!
Let me in! Let me in!
But the little pigs saw the wolf’s narrow eyes through the keyhole, so they answered back:
No! No! No!
Not by the hairs on our chinny chin chin!
So the wolf showed his teeth and said:
Then I'll huff
and I'll puff
and I'll blow your house down.
Well! he huffed and he puffed. He puffed and he huffed. And he huffed, huffed, and he puffed, puffed; but he could not blow the house down. At last, he was so out of breath that he couldn’t huff and he couldn’t puff anymore. So he stopped to rest and thought a bit.
But this was too much. The wolf danced about with rage and swore he would come down the chimney and eat up the little pig for his supper. But while he was climbing on to the roof the little pig made up a blazing fire and put on a big pot full of water to boil. Then, just as the wolf was coming down the chimney, the little piggy pulled off the lid, and plop! in fell the wolf into the scalding water.
So the little piggy put on the cover again, boiled the wolf up, and the three little pigs ate him for supper.
Yum!
Let’s compare the construction methodology
This point came home to me rather abruptly as I work with many, many factories supplying building and construction parts and assemblies for export all over the world. Yet, not for the United States. You see, I work with domestic Chinese-owned factories. While the exports going to the United States are actually American factories inside of China using Chinese labor. It’s all about the money, you see.
Anyways, I have tried to supply windows to the United States market, but sheech! their price targets are too low, and the materials used (as specified by the architects and the builders) are so ridiculously flimsy and cheap.
Let’s show some examples so you all can get and understand what I am talking about. Ok?
Comparisons – Windows
Most American windows are ultra-cheap vinyl. Usually they are single-pane tempered glass of around 6mm thick. There are sometimes dual pane glass, with a specification for an inert gas between the layers, but that is very rare these days. Most everything is on the cheap, cheap, cheap.
Here’s a high-end dual pane American vinyl plastic window.
Most Chinese windows are thick dual pane glass with inner layers to prevent shattering. 20mm thickness is not unheard of. And the frames are not cheap plastic but are solid cast and machined aluminum, anodized and set on bearing hinges.
Here’s the Chinese equivalent of the above window…
Chinese dual pane, thin glass window.
Chinese windows are robust, well made, sturdy and using aluminum, quality fittings, and components. American windows are made out of the cheapest materials possible, arranged in the most cost effective method possible, and priced as high as possible.
Would you believe that the high quality Chinese windows are actually CHEAPER than the flimsy plastic vinyl windows used in America? Yeah. It’s important to keep American dumb and stupid so that they can be forever sheared as for-profit cattle.
Comparisons – Doors
No comparison. Most export interior doors to the United States are truly pathetic.
Cross section of an American hollow core door. Terrible in that it is flimsy and has zero sound proofing ability.
While inside China, all doors are either 100% solid wood, or wood over a closed cell sound insulation foam.
Typical interior door cross section as used in a Chinese home.
Comparisons – Counter tops
The big “thing” has been to use cheap stone countertops. These are made out of quartz and reinforced underneath. The importation of this cheap stone has been so enormous, that the US government has placed “dumping” restrictions on it. Never the less, local American quarries still produce the cheap countertops, but now charge large amounts of money for it.
Quartz countertop.
The Chinese use higher quality stone. Mostly basalt, marble, and granite.
Chinese basalt countertop.
Comparisons – Walls
Most American homes these days are made out of 2×4 frames, and sheathed in drywall. This has changed, as there is now an even cheaper alternative to drywall (if you can believe that!) It’s compressed fiberboard. This video shows how pathetic it is… Video 9MB
While in China all homes are reinforced cement and stone, with marble, or granite, soapstone stone overlays over it. Yes, living in a typical Chinese house is like living in a museum.
A typical Chinese house interior.
Comparisons – Flooring
In America, the typical residential flooring is a foundational plywood deck, covered by carpet, or a hardwood laminate. Rarely are actual wood floors used in modern American homes any more.
Typical residential floor construction.
An China, the typical residential flooring is cement supported stone slabs or either marble, granite, or basalt.
If all of the “new” homes throughout America are made for little piggies who like twigs, straw and paper. While all the homes in China and Russia are made for little piggies who like bricks, concrete and stone (with reinforcement with steel rebar). Then what would happen if big bad wolves try to start a war?
Which homes would be easier to knock down? The flimsy cardboard and paper homes, or the stone and steel homes?
Obviously this part of the calculus has never entered the minds of the master leadership inside of Washington DC. If a mere CAT 1 tornado can take down a house anywhere in the USA, image what a 500 MT thermonuclear device would do.
It’s about risk. Like this…
Do you want more?
You can find more articles related to this in my latest index; A New Beginning. And in it are elements of the old, some elements regarding the transition, and some elements that look towards the future.
One of the often cited misconceptions that many Americans have is that China would collapse if the United States were to stop trading with her. The idea is that “China needs us more than we need them”. It’s not true, and it’s not even remotely true. Here, is the actual import data that China imports from the United States. Take a good long hard look at it.
China could very well have an embargo of the United States, and would do just fine.
The items that China imports from the United States.
Here’s a graphical summary.
While most Americans, and certainly most Alt-Right conservative Americans are under the impression that China imports an enormous amount of good from the United States, this is not the case.
Import data on what China imports broken down by type and classification.
Key Points
By looking at the graph above, the only manufactured items that are of significance to China (from the United States) are aircraft. Other manufactured products actually represent a very tiny percentage of imports by type. For instance, American-made machines represent only 5% of the total machines imported by China.
Conclusion
In the global sphere of things, the United States is not a dominant supplier of things that China wants or needs. Therefore, America has very little leverage to influence China to do its’ bidding.
In order to cajole or manipulate the Chinese government to take on positions that America wants, there has to be other systems in play. These manipulations and adjustments of global power projection such as [1] the threat of war, [2] famine, [3] sickness, or [4] regional revolt are the tools that the United States is, and has been, using to force China to bend to it’s will.
It is not at all outlandish to believe that the CIA, NED, the NID and other arms of the enormous United States bureaucracy has a “dark hand” at play at this time. It’s the only “cards” that America can play.
If you enjoyed this, you might want to see other posts on this subject in my China general index here…
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From 2016 through 2019, the United States under the guidance and direction of Donald Trump was enmeshed in trade negotiations with China. For most of that time, the negotiations were rocky and a period of discord and confusion reigned. Things become worrisome, and as a result, the world economy went into a recession and things began to take on a very gloomy outlook.
Then, in October of 2019, it was announced that the trade talks were resolved and that Phase One of the trade negotiations would be implemented. Here we discuss these issues, trends and the related affairs that colored this sequence of events.
There is a lot to learn here, as it involves diplomacy, expectations, society, culture, manufacturing, the global environment, and industry. Rather than look at it from the simplistic black-and-white “cardboard cutout” of how it is presented in the American media, let’s look at it in detail. It’s a very interesting study of the affairs of men and nations.
We will start with a recap.
A Brief Historical Recap
The US-China trade dispute erupted publicly in March 2018.
Its origins, however, go back to August 2017, when the Office of US Trade Representative (USTR) issued a preliminary report charging that China’s ‘2025 Plan’ projected passing the US in next generation technology development (5G wireless, Artificial Intelligence, Cybersecurity).
China’s plan represented a fundamental challenge to US global economic—and military—hegemony next decade, according to the USTR.
Made in China 2025 is a strategic plan of China issued by Chinese Premier Li Keqiang and his cabinet in May 2015. With it, China aims to move away from being the world’s “factory” and move to producing higher value products and services. It is in essence a blueprint to upgrade the manufacturing capabilities of Chinese industries.
That initial USTR report was followed by a second report released in March 2018. That report concluded and confirmed what the first report had raised. Both reports argued that China represented a threat in nextgen technology development that the US could not ignore.
Dr. Christopher Ashley Ford, Assistant Secretary, Bureau of International Security and Nonproliferation, gave a speech at the Multilateral Action on Sensitive Technologies (MAST) Conference, in which he explained that “countries that choose Huawei technology are opening the door to Chinese access to their domestic networks and local companies, as well as potential surveillance by Chinese officials, posing a potential threat to their national security and economic well-being.”
- State Department Highlights Chinese Technology Threats
The trade war with China only then commenced, with Trump imposing an initial $50 billion in tariffs on China imports.
An initial tentative agreement was reached between the main negotiators, the US team led at the time by US Treasury Secretary, Steve Mnuchin, in May 2018.
But you know, that tentative deal was quickly scuttled. The kibosh was put on it and it was shit-canned.
Neocons aborting the plan 1.
This is because US neocons, China hardliners, Pentagon, and the US Military Industrial Complex and friends in Congressional defense appropriations committees organized their forces and got Trump to nix the deal.
The scuttled deal included some serious concessions by China. That included [1] China agreeing to buy $1 trillion more in US farm goods over five years and [2] agreeing to allow US banks and financial institutions to have 51% ownership control of their operations in China.
These are really big deals.
But, the neocons would not have any of that. They wanted to rule the world and wouldn’t give an inch any way in any manner. Only America will be in charge. Only America can rule, tell other nations how to live and define the trade agreements. And if war is necessary to put other nations “in their place”, then so be it.
China reiterated their earlier (and substantial) concessions over the summer of 2018, but to no avail. The neocons would nave none of it.
The main issue was not the US trade deficit.
Nor IP guarantees.
Nor tech sharing of US companies in China.
Nor even majority ownership of US operations in China.
The main issue was the development of nextgen technologies—AI, 5G, and cyber. US Neocons aligned with the Pentagon-Military Industrial Complex, now led by Robert Lighthizer, the head of the USTR. These neocons did not want any nation to have any kind of technical superiority over America and they would fight it “tooth and nail” and economies, world trade, and prosperity be damned!
America MUST be number one, or nothing.
NOTHING!
Other notable neocons included Peter Navarro, special trade adviser to Trump.
Not to forget the largest neocon of them all, John Bolton, who demanded China slow, and even share its nextgen technology development with the US, or else no deal!
"We want your technology and you WILL give it to us.
If you don't well, we will put every pressure possible on you. And, oh by the way, don't think that we are not capable of planting swine flu to destroy all your pork products, launch revolutions and unrest in your cities, and maybe even sink a few ships if that's what it take to put you all in your place.America is the biggest, the best and the most powerful. Never forget that."
Seriously!
Negotiations stalled thereafter as Trump turned his focus to the NAFTA 2.0 negotiations and the 2020 midterm elections approached.
Six months burned away, and the trade negotiations, were dead in the water. The neocons convinced president Trump to “hold fast”, that China is still a third-rate nation and that the trade “wars” are sending China back twenty years.
But they were deluding themselves.
All the signs pointed to a reality that was at odds with American perceptions. Indeed, the Chinese had many “cards up their sleeves” and many of the assumptions that American advisors had on China were simply not true.
What’s worse, the American people started to notice this.
Negotiations were restarted in January 2019 after the midterm elections, and another five months of negotiations between the parties took place until another tentative deal was reached in May 2019.
Neocons aborting the plan 2.
That tentative deal once again was blown up at the last minute by the Lighthizer-Navarro neocon faction now in control of negotiations, with Mnuchin in tow as a co-chair.
That tentative deal once again was blown up at the last minute by the Lighthizer-Navarro neocon faction now in control of negotiations, with Mnuchin in tow as a co-chair.
As the China delegation prepared to come to the US to sign off in May 2019, the US raised new additional demands:
[1] China had to share its nextgen technology development with the US.
[2] China to cease subsidizing its state owned enterprises.
[3] China to provide assurances it would not devalue its currency to offset US tariffs (which now totaled $200 billion).
[4] The existing US tariffs would remain in effect even if an agreement were reached. They would not be removed.
These were the new terms, “Too bad” they said.
All these demands were publicly communicated in the week prior to the May 2019 meeting in Washington D.C. when the deal was scheduled to be signed off.
It seems like they were totally and wholly devoted to terminating the deal, rather than trying to find some common ground from which to negotiate to in good faith.
Neocons aborting the plan 3.
Understandably, the China delegation came and returned home in a day.
The Neocons had scuttled a deal once again. Nextgen technology was the crux. Either China capitulated on nextgen tech or there was no deal, according to the Neocon-Pentagon position.
The Neocons had scuttled a deal once again. Nextgen technology was the crux. Either China capitulated on nextgen tech or there was no deal, according to the Neocon-Pentagon position.
Trump thereafter met China president, Xi, in Osaka Japan at the G20 meeting. They both agreed once again to restart negotiations. Both also agreed to keep a hold on the level of existing tariffs and not raise them further in the meantime.
But Trump broke the pledge in late July 2019.
On the advice of his neocon trade negotiators, he raised tariffs on the remaining $250 billion of China imports. The understanding with Xi not to raise more tariffs was thus shattered.
China raised tariffs of its own on US goods in response.
On the advice of his neocon trade negotiators, he raised tariffs on the remaining $250 billion of China imports. The understanding with Xi not to raise more tariffs was thus shattered. China raised tariffs of its own on US goods in response.
Trump threatened to raise existing tariffs by another 5%, to 25% and 30%, and levy more on all the remaining China imports in December 2019.
The trade war was intensifying.
China took steps to stabilize the situation. China stopped intervening briefly in global money markets to prevent its currency, the Yuan, from devaluing and allowed it to fall 5%-7%–a move that essentially negated Trump’s additional 5% tariff hike.
China stopped intervening briefly in global money markets to prevent its currency, the Yuan, from devaluing and allowed it to fall 5%-7%–a move that essentially negated Trump’s additional 5% tariff hike.
Stock and bond markets plummeted on the mere prospect of a trade war now morphing into a currency war. The trade war, based mostly on tariff hikes, was about to expand the economic conflict beyond mere tariff measures.
Uh oh!
It will be the USD (inflated with mountains of debt) against a rising currency the yuan (that represents the bulk of world wide manufacturing).
Tariffs were already slowing the global economy. A currency war would quickly spread beyond US and China and inject even more instability into the already slowing global economy.
Both China and Trump peered over the cliff of a pending broader economic war between the two economies—and then backed off.
Both China and Trump peered over the cliff of a pending broader economic war between the two economies—and then backed off.
This continued all Summer until September 2019.
Fast forward, the outcome by September 2019 was yet another resumption of negotiations between the two parties, followed by the announcement of a ‘Phase 1’ deal on trade.
So why did Trump ‘stand down’ and agree to a deal now, after escalating his threats and actions over the summer?
The reasons pointed to American problems as a result of the “trade dispute”. You see, America was not as robust as the government would like everyone to believe. Thus, clearly it had to do with [1] the US economy softening in the 3rd quarter combined with [2] a growing discontent in the farm sector. This discontent is over Trump’s handling of the trade dispute that was beginning to bite hard on US farm sector sales. You see, American farmers were heavily dependent on exports to China.
The reasons clearly have to do with [1] the US economy softening in the 3rd quarter combined with [2] a growing discontent in the farm sector. This discontent is over Trump’s handling of the trade dispute that was beginning to bite hard on US farm sector sales. You see, American farmers were heavily dependent on exports to China.
As the trade dispute between the countries had intensified over 2018-19, Trump had placated farm interests by providing an extra $28 billion in direct farm subsidies.
But it wasn’t enough.
According to some sources, no fewer than 12,000 farms went bankrupt in 2018 alone. The $28 billion was going mostly to agribusiness and not getting down to independent farmers who needed it most.
According to some sources, no fewer than 12,000 farms went bankrupt in 2018 alone. The $28 billion was going mostly to agribusiness and not getting down to independent farmers who needed it most.
Farm sector trade associations were demanding Trump settle the trade dispute and their voices grew louder after the August escalation between the US and China.
"This trade war of YOURS is killing US. Please stop it, resolve it, or do whatever it takes, and do it soon. You are killing us!"
So too were other notable business groups, like the US Chamber of Commerce and Business Roundtable, raising their complaints about the now rapid deterioration of the negotiations.
"I thought that we would come to a mutually fair and agreeable trade agreement. Not one that is contentious, where we are making all the demands, and forcing China into a corner in which they will never agree to. This is not only stupid in the short term, but unwise in the long term. STOP POKING THE PANDA BEAR!"
So too were other notable business groups, like the US Chamber of Commerce and Business Roundtable, raising their complaints about the now rapid deterioration of the negotiations.
The trade war was beginning to clearly impact general business investment and manufacturing in the Midwest US, and not only in the US but worldwide.
The entire global economy started to slow affecting everything and everyone.
US business investment on new plant and equipment turned negative in the 2nd quarter and promised to continue to slump, while business inventory investment was also being pared. If actions wouldn’t reverse, the entire “deck of cards” could go “belly up”.
On January 8 the World Bank released its report Global Economic Prospects, which confirmed what most people had suspected all along. The World Bank estimates global economic growth to decelerate by 0.1 percentage points in 2019, and the decline could continue well into 2020 as well.
Part of this could be attributed to the Donald Trump factor — free trade is being threatened like never before. However, it is also because the world has been awash in cash after 2008. Any attempt to bring back financial sobriety will mean a bit of belt-tightening, and hence an inevitable slowdown.
The trade war was beginning to impact beyond the farm sector.
By August the US manufacturing sector began to contract, joining what had now become a global manufacturing recession.
Moreover, at the end of August it was also beginning to appear that the manufacturing contraction in the US was potentially spilling over to the larger services sector.
While manufacturing PMIs were contracting in the US, the even larger Services sector PMI had begun to decelerate sharply in terms of growth rate.
Chase bank research was estimating that, with the new Trump tariffs on China consumer good imports set for September and December, consumer spending would be reduced on average by no less than $1,000 per household.
Of equal concern, the new round of Trump tariffs on consumer goods now threatened to slow US consumer spending—the only sector of the economy still holding up in terms of growth. If it does in fact impede growth, there could be disastrous consequences for America, Americans the reelection chances of Donald Trump.
"A key measure of consumer spending unexpectedly dropped for the first time in seven months in September, raising concerns about one of the brightest spots in the US economy.
The Commerce Department said Wednesday retail sales fell 0.3% last month, the first decline since February and compared with a 0.6% rise in August. Retail sales account for more than two-thirds of economic output.
Consumer activity, along with hiring, has propelled an economy that has been otherwise roiled by a trade dispute between the Trump administration and China."
Chase bank research was estimating that, with the new Trump tariffs on China consumer good imports set for September and December, consumer spending would be reduced on average by no less than $1,000 per household.
It was this growing economic slowdown in the US—combined with the growing political discontent in the farm sector and from other major non-farm business organizations—that pushed Trump to concede to the Phase 1 deal.
President Donald Trump’s trade war provided the kind of real-world experiment that practitioners of the dismal science so desperately crave, but the results weren’t all that different from what their econometric models predict. In a new paper, “The Impact of the 2018 Trade War on U.S. Prices and Welfare,” economists Mary Amiti of the Federal Reserve Bank of New York, Stephen J. Redding of Princeton University and David Weinstein of Columbia University document what economists have told us for decades: that tariffs are a tax on the consumer.
Trump may say, and believe, that “billions of dollars will soon be pouring into our Treasury from taxes that China is paying for us,” but China isn’t paying the taxes. U.S. consumers are. And as for the president’s belief that tariffs will “cure” the nation’s trade deficit, which he sees as a sign of weakness, today’s data suggest otherwise.
The study found that the waves of tariffs throughout 2018 resulted in “substantial increases” in the prices of intermediate and final goods, the cost of which was borne entirely by U.S. consumers. There was little improvement in the “terms of trade,” which means exporters didn’t lower their pre-tariff prices. And the higher price of imports enabled U.S. producers to raise their prices. What’s more, the tariffs introduced inefficiencies by disrupting supply-chain networks. And the customs duties were insufficient to offset the loss to consumers.
Trump’s 2020 election interests had become more paramount than the concerns of the neocons and militarists who were demanding China capitulate on the nextgen tech issue or no deal.
A rapid about face by Trump occurred by late August-early September and China was once again invited to resume talks in Washington in early October.
The content of the Phase 1 deal reached October 11, 2019 reveals that Trump abandoned his ‘big deal or no deal’ position. He retreated from the neocon ‘non negotiable’ demand, that was holding up a deal since May 2018. This demand was that China capitulate on the nextgen tech issue or no trade deal.
The content of the Phase 1 deal reached October 11, 2019 reveals that Trump abandoned his ‘big deal or no deal’ position. He retreated from the neocon ‘non negotiable’ demand, that was holding up a deal since May 2018. This demand was that China capitulate on the nextgen tech issue or no trade deal.
Placating his farm sector political base to get China to resume purchases, and taking China’s 51% ownership concession desperately wanted by US big banks (i.e. the primary demand of the Mnuchin faction on the US negotiating team), became Trump’s new priority demand in Phase 1.
Neocon John Bolton fired.
The nextgen technology issue so critical to the neocons was clearly demoted and removed from the bargaining table by the US.
In Phase 1 China got its ‘partial’ deal—and absent any concessions on the nextgen tech issue. That was left for a Phase 2 or even Phase 3, as Trump put it in his press conference the same day.
Trump’s advisers believe he wants to impose a 25 percent tariff on foreign autos, hoping to raise the cost on foreign competition and persuade U.S. consumers to buy American-made cars. But critics — which include many of his fellow Republicans and even some of his own advisers — caution it could raise costs for consumers and be a disaster for jobs.
Those critics also (unsuccessfully) urged Trump to not put tariffs on steel and aluminum imports, but this time the stakes are far higher.
So far, the president has tariffs on foreign washing machines, solar panels, steel, aluminum and some Chinese-made goods. In total, the tariffs cover about $85 billion worth of products. It sounds like a big number, but it is less than 4 percent of the United States’ total imports last year ($2.4 trillion)
Trump got what the China delegation had already offered way back in 2018: i.e. 51% ownership and resumption of big purchases of US farm products.
In short, Trump caved in and in effect “took the money and ran”. His 2020 re-election interests took precedence over the neocon-military concerns over China’s nextgen tech development. He announced to the world that the USA and China came to an agreement and trade deal.
In short, Trump caved in and in effect “took the money and ran”. His 2020 re-election interests took precedence over the neocon-military concerns over China’s nextgen tech development. He announced to the world that the USA and China came to an agreement and trade deal.
What’s In the Phase 1 Deal?
Important to note, the Phase 1 deal itself is not yet a signed agreement. It’s a verbal understanding between Trump and China’s vice-premier and chief negotiator, Liu He.
In his press conference announcing the deal on October 11, Trump admitted the parties were yet to sign off even on Phase 1 but hoped that it could be done within 5 weeks; that is by the time Trump and Xi meet again at the APEC conference in Chile in November.
Increased purchases of farm products by China.
Trump boasted repeatedly the Phase 1 deal included up to $40-$50 billion in new US farm purchases by China.
Over what period was not clear, however. Trump vacillated from saying current levels of China farm purchases were $8 billion, or maybe $16 billion, or was $17 billion at prior peaks.
He really didn’t know. Or maybe it was $20 billion, as one side comment was made in the press conference. It sounded like $40 billion was the target agreed to in principle and over the course of the next two years.
But that was the ceiling apparently.
Trump declared there’s “never been a deal of this magnitude for the American farmer”. Of course that wasn’t true. But the Trump hyperbole and spin was in.
Americans can have controlling interest in their companies on Chinese soil.
Another major agreement area in Phase 1, according to Trump, was China’s confirmation it would allow US companies to own 51% of their operations in China. As Trump put it, “banks will be very very happy”.
More US multinational corporations could now shift even more production to China.
A Suspension of an additional 5% tariff hike over the already applied 25% tariff hike.
On the important tariff front, in Phase 1 Trump agreed only to
suspend his threatened 5% tariff hike (raising rates from 25% to 30%)
due the following week of October.
What’s NOT In Phase 1
What’s not in Phase 1 reveals clearly that Trump clearly capitulated
on the nextgen tech issue in exchange for resumption of farm purchases
and the 51% US bank ownership in China offer.
No Intellectual Property protections.
What was agreed to in ‘IP, or intellectual property’ protections was
left vague in Phase 1. Trump admitted only some IP issues were included
in Phase 1 but didn’t say what. IP was mostly left to Phase 2, per
Trump.
No details on how China can control the value of the yuan.
Equally vague was the understanding in Phase 1 on how China might agree not to devalue the Yuan, its currency. That was key to the US since devaluation would offset Trump tariffs.
Trade representative, Lighthizer, provided some vague commentary during the Trump press conference about how China and the US would meet to work out some rules in that regard. But the devaluation issue itself was irrelevant.
China had consistently over the preceding 15 months of trade war intervened in money markets to keep its currency from devaluing, and did so even as the rising US dollar was the primary cause of the pressure on the Yuan to devalue, as it other currencies worldwide as well.
If anything was driving the devaluation it was the rising US dollar, not a policy action by China to enact a devaluation.
No action on nexgen technology.
Tech issues were in general put off.
As Trump declared, would be “largely done in Phase 2”, or maybe even a Phase 3. And Phase 2 would not begin until and if Phase 1 verbal understandings were ‘signed off’ in writing five weeks from now by Trump and Xi in Chile.
Further revealing no agreement on the strategic nextgen tech issue, Trump indicated the US would continue its policy attacking China’s 5G tech company, Huawei, as well as selectively ‘blacklist’ other Chinese AI companies in the US.
That was, he added, “a separate process”.
So the nextgen tech issue is now a separate track, in effect decoupled from the trade negotiations. It is very unlikely it will be reintroduced in Phase 2, should that subsequent round even occur, which is not likely in any substantive way before the 2020 US elections.
No reduction on existing tariffs.
Also left out of Phase 1 was any US reduction of existing tariffs on
China imports. That continuation of tariff levels included the $160
billion of China consumer goods exports to the US scheduled for December
15, 2019.
China can continue to subsidize it’s state-owned businesses.
The US also apparently failed to attain its demand that China reduce
its subsidies to its state owned enterprises—a strange proposal given
that the US just subsidized its business sector with trillions of
dollars with Trump’s 2018 tax cuts.
How and Why Trump Folded in the Trade War with China
As usual, Trump talked tough before his G20 meeting with Xi Jinping in Osaka, Japan.
“China will face 25% tariffs on the $300 billion of the remaining imports,”
It was frightening and terrifying, and the world shook. But lo and behold, he not only came up empty handed, but he also caved in numerous ways, including reversing his ban on Huawei.
What happened?
To summarize Trump’s astonishing loss at the negotiations with China:
He didn’t raise new tariffs (on the $300 billion of Chinese goods)
He reversed his ban on Huawei as well as eight other Chinese hi-tech companies, which were sentenced into the “entity list” just a month and half ago. (Now the whole “Huawei is a security threat” has been revealed as an utter hoax!)
He accepted more talks (though, without any deadline targets).
In exchange for all of this, all Trump got was China’s promise to buy more agricultural goods. Ah yes. Once again soybeans and farmers play an immense role in trade decisions.
Tech Bomb Neutralized
How did this happen?
First, China quickly neutralized Trump team’s “nuclear option”. With that option (or idea) being to shut down Huawei, at all levels, in the United States.
Huawei Technologies Co., Ltd. is a Chinese multinational technology company that provides telecommunications equipment and sells consumer electronics, including smartphones and is headquartered in Shenzhen, Guangdong province.
It’s not a bad play. As it has worked before.
The US was trying the same playbook that worked with Japan in the 1980s. That time, the US banned Toshiba to bully Japan into the infamous Plaza Accord. But, don’t you know, China isn’t Japan!
ThePlazaAccordorPlazaAgreementwasanagreementbetweenthegovernmentsof France, West Germany, Japan, the United States, and the United Kingdom, todepreciatetheU.S. dollarinrelationtotheJapaneseyenandGermanDeutsche Markbyinterveningincurrencymarkets.
-Wikipedia
This time, however, was different.
Indeed, China and Huawei had a surprise for the US team. Huawei announced that it had been preparing for just this kind of an emergency for many many years.
They were ready.
This time, however, China and Huawei had a surprise for the US team: Huawei announced that it has been preparing for just this kind of an emergency for many many years. They were ready.
Huawei’s CEO (Ren Zhengfei) went on the offensive.
With the media hounding him for rebuttals and sound bites, he responded in a measured and methodical manner. In all, he laid out some pretty surprising comments and announcements. In which [1] he claimed that HiSilicon (a Huawei subsidiary) can make most of the semiconductor chips that Huawei uses, and [2] that Huawei has been working on a secret operating system (“Hong Meng” or “Ark OS”) that can replace both Android and Microsoft Windows!
Huawei did not need American semiconductor chips.
Huawei did not need American or Korean operating systems.
Some media outlets reported that this OS, referred to as "Hongmeng OS", could be released in China in either August or September 2019, with a worldwide release in the second quarter of 2020. On 24 May 2019, Huawei registered "Hongmeng OS" as a trademark in China.
- Harmony OS - Wikipedia
The reaction on the social media was unmistakable. Make no mistake. Anyone who was not an American was rooting for Huawei. Yes, the “underdog” which sold 200 million smartphones last year and half of them were outside China.
Hisilicon Technologies Co., Ltd. (海思半導體) is a Chinese fabless semiconductor company wholly owned subsidiary of Huawei. Founded in 1991 as ASIC Design Center of Huawei Technologies Co., Ltd., HiSilicon became an independent, wholly owned subsidiary of Huawei in 2004.
- HiSilicon - WikiChip
The reaction on the social media was unmistakable. Make no mistake. Anyone who was not an American was rooting for Huawei. Yes, the “underdog” which sold 200 million smartphones last year and half of them were outside China.
Americans had no idea. The Trump negotiation team were blindsided by this. American industry were stunned.
Now, Google and Microsoft were scared.
What if Huawei really launched a good decent OS that can take on Android and Windows? Worse, what if all the other Chinese smartphone companies switched to Hong Meng?
About 65% of worldwide Android users are using Chinese brands!
China is a major player when it comes to the production of smartphones. In addition to having a hand in many of the most recognizable tech brands, China has a number of its own brands that have become quite popular internationally. Are any smartphones not made in China? You can find a phone that’s not manufactured in the People’s Republic–if you’re willing to hunt.
While the US was trying to kill Huawei, it seemed like Huawei was about to kill Android.
The roles were reversed, and America wasn’t ready.
And the implications are far worse.
For the US would lose all its abilities to spy on the world, if both the hardware and the software are Chinese! Truth be told, this is the real reason why Google started lobbying the Trump administration to lift the ban on Huawei.
As for the US semiconductor companies, they also started seeing signs of Chinese independence in the chip-designing area.
China announced a new home-grown CPU that could compete with Intel and AMD. This would be the first time a non-American company would make its own CPU. And another Chinese company announced it will start mass production of memory chips (DRAM).
China announced a new home-grown CPU that could compete with Intel and AMD. This would be the first time a non-American company would make its own CPU. And another Chinese company announced it will start mass production of memory chips (DRAM).
To summarize: US plans for crushing Huawei fell flat and (depending on your point of view) even backfired.
US plans for crushing Huawei fell flat and backfired.
Chinese Economy
How about China’s economy? Are Trump’s tariffs crushing the Chinese economy? Was China on the verge of collapse due to starvation, famine and a rising tide demanding “democracy”?
Not really.
Of course, you wouldn’t be able to tell, with the American propaganda machine in full force, churning out bullshit…
"China’s economy grew at mere 6 per cent in the third quarter of 2019 compared with a year earlier, its slowest pace in about 30 years, delivering another blow to global growth and underlining many of the challenges facing President Xi Jinping.
The country’s trade war with the US, slowing income growth and cooling manufacturing investment took a toll on the world’s second-largest economy between July and September, according to the figures released by the (American) National Bureau of Statistics on Friday."
- The Worst Chinese Economy in 30 Years
Meanwhile, the American economy is roaring forward ever skyward…
"The Gross Domestic Product (GDP) in the United States expanded 2.30 percent in the second quarter of 2019 over the same quarter of the previous year. GDP Annual Growth Rate in the United States averaged 3.20 percent from 1948 until 2019, reaching an all time high of 13.40 percent in the fourth quarter of 1950 and a record low of -3.90 percent in the second quarter of 2009."
- United States GDP Annual Growth Rate | 2019
Um… I might not be the smartest fellow in the world, but I am pretty sure that 6.0% is a lot better than 2.3% growth. No matter how you look at it.
What’s going on?
During Jan-May 2019, China’s exports to the US fell about 5%, but China’s exports to the EU rose more than 14%. And, guess what, EU is China’s #1 trading partner (and ASEAN is the #2 trade partner), while the US is #3.
During Jan-May 2019, China’s exports to the US fell about 5%, but China’s exports to the EU rose more than 14%. And, guess what, EU is China’s #1 trading partner (and ASEAN is the #2 trade partner), while the US is #3.
So, China keeps growing at a healthy pace. In fact, the IMF predicts a healthy 6.2% real GDP growth for China this year!
But here’s the kicker.
While China’s exports to the US fell 4.8%, the reverse — US exports to China — fell by a whopping 24% (for the first five months of 2019).
The talking is over. Now we’re fighting a real trade war — and here on my farm in Iowa, I’m on the front line.
The dispute between the United States and China poses a direct threat to my livelihood. Because of the new and emerging tariffs on both sides, the things I grow will sell for less and the things I buy will cost me more.
This week the price of hogs dropped $12 for every pig I sell. This morning, soybeans are down 40 cents a bushel — a $1.7 billion loss to the value of U.S. soybeans. And if I want to make new capital purchases of machinery or grain bins — anything made with steel or aluminum — I’ll have to pay a higher amount.
For years, we’ve engaged in a war of words with China over trade. American officials have complained about everything from China’s currency manipulation and subsidized industries to a trade deficit that hit a record level in 2017. The difference between what Americans bought from China and what Chinese bought from the United States reached $375 billion last year. President Trump recently demanded that the United States reduce this gap by at least $100 billion.
Last month, Trump fired a salvo, announcing new tariffs of 25 percent on imported steel and 10 percent on imported aluminum. China retaliated a few days ago with a long list of new tariffs, affecting about $50 billion of American-made products. Many fruits and nuts, for example, will face a 15 percent tax. So will a variety of stainless steel pipes.
China also slapped a 25-percent tax on pork products — a category that affects me directly because I raise hogs. We try to sell every part of these animals, from the meat to the offal. Even before the trade war erupted, pork prices weren’t very good. Now they have dropped to the lowest prices since 2003.
Now things are going from bad to worse.
The Trump administration responded on Tuesday by proposing more than 1,300 new tariffs on Chinese products, including televisions, chemicals and machinery. They’re also worth about $50 billion, in a tit-for-tat move that aims to match China’s latest round.
Now China has shot back. On Wednesday, it added tariffs to more than 100 U.S. products, including cars and planes. This round affects me, too. If the Chinese impose the announced tariff of 25 percent on soybeans, another major product on my farm, it will lower my price $2.50 a bushel.
China isn’t the only market for my pork and soybeans. Reducing our access to this important destination, however, has global repercussions. The bottom line is that what I produce is suddenly worth less money. My competitors in Argentina and Brazil must be celebrating their good luck.
What will tomorrow bring? Nobody knows. Today, however, is bad enough: My farm business is now under siege, held hostage by a trade war that my neighbors and I never wanted. Yet, U.S. Trade Ambassador Robert Lighthizer says we can’t worry about me, it is the big picture that is important. All I can say to him is that the financial bullets are real, and they hit with real impact on us in agriculture.
To be sure, Trump isn’t doing anything he said he wouldn’t do. He has talked tough on trade from the moment he announced his candidacy. I supported his election, but also harbored deep reservations about his trade agenda. Now my fears have come to fruition.
My hope is that the president will make good on the promise that he’s a master negotiator. Perhaps he’ll bargain his way out this mess. Many of the new tariffs have yet to take effect. They’ve already shaken markets and taken an economic toll, but they are threats rather than realities. Perhaps a round of productive bargaining will sweep them away.
- Impact of Chinese trade war: What American farmers produce is suddenly worth less money
So, US exporters and farmers are hurting real bad.
And Trump cannot win re-election without the support of those “great soybean/corn/pork farmers.”
As for the tariffs on the last $300 billion of imports from China, 600 major US corporations and influential trade groups — Walmart, Nike, Apple etc. — strongly lobbied against the tariffs and held a few days of hearing/testimony with the US Dept. of Commerce.
Behind the doors, corporate lobbyists were probably threatening US politicians — “If you don’t stop these tariffs, we will fund your opponent in the coming election and destroy you!”
Then, to really really rub it in, Apple announced one day before the G20 meeting that they were going to move manufacturing of high-end desktop computers (Mac Pro) from the US to China!!!
Yes, it is true, China can cripple the US economy in many ways. Rather than actually carrying out these threats, the Chinese government warned US corporations whose subsidiaries are making hundreds of billions of dollars every year in China — note that this is not reflected in the official trade surplus/deficit calculations.
Then China made these corporations lobby the Trump administration. This is much more effective.
At the same time, China has also been opening up certain sectors in the last month. For example, Morgan Stanley was allowed to become a majority holder in its joint venture; and US corporations would be free to compete
in oil/gas sectors in China. Such actions create allies who will put
the pressure on US politicians to not escalate the trade war.
As for manufacturing, China is moving ahead with artificial intelligence, robotics, 5G, IoT etc. The Chinese really don’t want to be stuck with low-end manufacturing. If some of these jobs move to Vietnam, Thailand etc., that’s fine.
China needs only four or five more years before it fully catches up with the US in major sectors such as semiconductor, biotechnology and civil aviation. While the Chinese government has officially stopped talking about “Made in 2025,” you can bet it has been accelerated to “Made in China 2023.”
Thus, the Chinese government’s plan is to just ride out America’s temper tantrum for a few more years.
The US needs a completely new paradigm for the 21st century. Unfortunately, Washington elites are totally clueless.
Washington elites are totally clueless.
Sun Tzu said, “strategy without tactics is the slowest route to victory, but tactics without strategy is the noise before defeat.” The latter approach is more appealing to Trump, the real estate salesman and TV reality star.
Total capitulation? Art of the Deal? There are actually some very interesting global dynamics at play and lessons to learn. First, to summarize, Trump announced a ‘Phase 1’ of trade deal with China.
Moreover, to the dismay of many of his supporters who are virulently anti-China, he said the following: “There was a lot of friction between the US and China. Now it’s a love fest! That’s a good thing.”
Why Trump made the deal with Phase One
As I have written numerous times over the last 1.5 years, the trade war with China was a futile effort.
China is too strong.
The US is too dependent on China.
It is also impossible to move any meaningful amount of manufacturing out of China.
Moreover, Trump is facing re-election and now, to make things worse, possible impeachment by Democrats. He needs a win. The best solution is to get a partial deal and declare victory.
Winners and Losers
While the US didn’t get its biggest demand (structural changes to the Chinese system) Trump certainly won some decent concessions. These include
China opening up its financial sector to Wall Street
US companies operating in China without joint ventures or technology transfer
Currency deal (strengthening Yuan)
Chinese purchase of agricultural products
Winner #1: The people who run the US are the financial guys — Goldman Sachs, JP Morgan, Blackstone, Fidelity, Vanguard, Citigroup etc. These guys don’t give a damn about manufacturing,
which is a low-profit operation. The mega and easy profits are made in
stocks, bonds, mutual funds, insurance, derivatives etc.
The ultimate dream of these Wall Street types is to tap into the Chinese market, which has the world’s largest middle class with the fastest growing wealth. Starting next year, these financial guys will be able to set up fully foreign-owned firms that specialize in futures, securities and mutual funds.
Winner #2: China comes out as a winner, even though it has suffered and compromised quite a bit in the negotiations.
First, the US attack has forced Chinese companies to accelerate their plans for technology independence.
Second, the trade war has helped strengthen the Chinese communist party and has increased the sense of nationalism among the public. China has now proven to the world and itself that it can stand up to the US — it didn’t fold in the trade war; numerous countries have refused to ban Huawei or drop out of the Belt and Road Initiative in spite of a lot of American pressure; and US corporations like the NBA and Apple have bowed to China.
Third, the opening up of China will create competition and eventually improve Chinese companies.
Finally, fourthly this truce will stabilize China’s economy and stop America’s hybrid wars (non-war wars). Indeed, just watch how quickly the protests in Hong Kong fizzle out; and watch how the Uyghur “concentration camp” story gets forgotten by the US media.
Partial Winners: US corporations are partial winners, and US farmers will go back to where they were before.
US corps will be able to export more, when the Yuan becomes stronger.
Of course, it depends on how much and how fast Yuan rises. Also, Trump
says that China has agreed to buy $40 or $50 billion worth of US
agricultural products, but farming is not like a factory where you can
double the output easily. So, farmers will just go back to the status
quo before the trade war began.
Just like Bush didn’t break China, Trump won’t break China by forcing
another 20 or 25% rise in Yuan’s value. In fact, that will work just
fine for China, which wants to (1) move its economy more towards
consumption and (2) make Yuan an international currency.
Losers: First, all the rabid anti-China, anti-communist and anti-globalist conservatives are going to be deeply disappointed.
We are not decoupling with china and, worse, we are becoming more interconnected with China. There’s a big crowd on social media who spew insane things like China is our biggest enemy every day! Followers of Steve Bannon, Peter Navarro, Gordon Chang, Kyle Bass etc. will be going through the five stages of grief.
Also, the losers will be those who dreamed of manufacturing jobs
streaming back from China to the US. (They may come back 10-15 years
from now when industrial robots are much smarter).
Phase 1 Conclusion, and on to Phase 2
In his White House briefing, Trump also mentioned a couple of times that this deal is good for world peace. Whether he meant it or not, the sentiment is right. The concept of “Chimerica” may have a chance to live a little longer.
However, there is a catch: US elites may still be dreaming of the “Phase 2” of the deal.
What’s in Phase 2
This is the failed dream-plan to stop the rise of China. Many conservatives hope that this will be implemented to put China in it’s “rightful” place.
This includes “structural changes” to China’s economy — basically making China open up its entire economy to foreign banks/corporations and dismantle its socialist system. It is intended to dismantle the Chinese “Communist with Chinese characteristics” system and replace it with American-style democracy…
As if that is EVER going to happen!
On Tuesday, the House of Representatives passed the Hong Kong Human Rights and Democracy Act of 2019. Also, we can expect more legislation. The legislation will hamper Chinese interests. Geng Shuang, China’s Foreign Affairs spokesperson, warned the US about consequences. He said that the legislation is the “wrong decision of the U.S.”
He also said, “Chinese side will have to enact effective countermeasures,” according to a CNBC report.
Shuang warned that if the Senate passes the bill, the bilateral relationship between the US and China could deteriorate. The deal will hamper US interests in China.
Notably, China is an important market for US stocks like Apple (AAPL) and Tesla (TSLA). Apple suppliers are located in China. Notably, car sales in China contribute significantly to Tesla’s revenues. However, the above events might give President Trump an extra edge during the trade talks. The legislation needs President Trump’s approval.
-Market Realist
Such changes will mean that there won’t be any state-owned enterprises or government-directed plans like “Made in China 2025.”
From the beginning, US elites were trying to break China like they did with Japan in the 1980s.
In the Plaza Accord, the US forced Japan to double the value of Yen, move car manufacturing plants from Japan to the US, accept crippling sanctions on Toshiba, and handover valuable semiconductor technology patents to the US. All these were possible because the US still occupied Japan. And the lead American negotiator who made it all possible was … Robert Lighthizer … who’s now been leading the charge against China for more than two years.
Unlike Toshiba … Huawei and other Chinese companies now under the “entity list” can survive without US technology or market. Unlike Japan … China is a fully independent country.
Head’s up…
Phase 2 will never happen.
It is highly unlike there will be a ‘Phase 2’ in anything but a token discussion level. And if there is, it is extremely unlikely it will include any meaningful concessions by China on next gen tech—i.e. AI, 5G, cybersecurity.
China has now clearly prevailed in blunting Trump and the neocon offensive in that regard.
For their part, Trump and US military-industrial-Pentagon interests will continue to pursue blocking China on the tech issue in ways decoupled from trade negotiations.
Various other measures will now be the focus, such as attacking and blacklisting China tech companies in the US and even elsewhere among US allies. Perhaps even delisting them from US stock exchanges, as a recent Washington ‘trial balloon’ proposed.
Trump did not go there on the eve of the recent negotiations.
It would certainly have ‘blown up’ the trade deal once again if he had. But that—blacklisting and delisting—remain as likely US tactics in the months to come. For the technology war—i.e. the real war behind the tariffs and trade war—has only just begun between the two countries.
And a broader economic war involving non-tariff measures is almost certain to erupt after the 2020 elections.
A ‘Phase 2’ follow up negotiations is tentatively set for after the Phase 1 sign off in November in Chile. Not much will come of it, however, so long as Trump insists on maintaining the current level of 25% tariffs on China imports to the US.
Trump likes the current level of tariffs and the revenue it brings in, which allows him a somewhat independent source of financing for his domestic programs independent of the US Congress passing legislation and authorization bills which he now won’t get.
On the other hand, Trump may temporarily suspend the planned tariff hikes on $160 billion of consumer goods due December 15, 2019 should the US economy continue to weaken in the 4th quarter, which is more likely than not.
But it will be a temporary suspension, not a dropping of the tariffs.
The 15 month long US-China so-called trade war is over.
There will be further discussions but no significant changes before the US 2020 election. What Trump got in Phase 1 is all he’s going to get.
He’s probably promised the neocons, who have lost out on this Phase 1 deal, even more aggressive action against China companies doing business in the US. That’s their ‘concession prize’.
Worst case, Phase 1 might not even be finalized, should the neocon-Pentagon-Military Industrial Complex faction regroup and try to scuttle the deal, once again for a third time. There’s always that possibility.
-Counterpunch
Meanwhile, China is putting the Neocons on warning… do NOT mess with us.
This is China's most advanced intercontinental ballistic missile (ICBM) and it has an operational range of more than 14, 000 kilometers. The DF-41 is capable of carrying about 10 independently targetable nuclear warheads which can hit any target on earth. DF-41 is now the world's longest range missile ahead of US LGM-30 Minuteman which has a reported range of 13,000 kilometers.
- China unveils Dongfeng-41 missiles that ‘can strike US
…the US realized that gunboat diplomacy or nuclear diplomacy are off the table.
For decades, the United States has taken China’s ballistic missile capability for granted, assessing it as a low-capability force with limited regional impact and virtually no strategic value. But on October 1, during a massive military parade celebrating the 70th anniversary of the founding of the People’s Republic of China (PRC), Beijing put the U.S., and the world, on notice that this assessment was no longer valid.
In one fell swoop, China may have nullified America’s strategic nuclear deterrent, the U.S. Pacific Fleet, and U.S. missile defense capability. Through its impressive display of new weapons systems, China has underscored the reality that while the United States has spent the last two decades squandering trillions of dollars fighting insurgents in the Middle East, Beijing was singularly focused on overcoming American military superiority in the Pacific. If the capabilities of these new weapons are taken at face value, China will have succeeded on this front.
The ghosts of Opium Wars and the Century of Humiliation made sure that China was prepared for this moment.
A Failed Trump Trade Policy
Trump’s trade war with China is clearly a net failure. Trump could have gotten the same deal back in 2018, more than a year ago. Instead, the dispute was allowed to escalate, with the effect of causing business uncertainty and slowing investment in the US and worldwide due to the 15 month trade war.
The trade war has clearly played a part in the global manufacturing recession now underway, which threatens now to spread to services and consumption and precipitate a general recession in the US economy and possibly even worldwide.
Trump has pushed the global economy to the brink of a worldwide
currency war in the process as well. He has drained $28 billion thus
far from business and consumer spending in order to collect tariff
revenues that he’s diverted in turn to the farm sector in subsidies that
otherwise might not have been necessary. Small business, household
consumers, and failing small farmers have paid the price and will
continue to do so in higher prices from continuing tariffs.
Despite 15 months of trade war with China—and a series of ‘softball’ trade deals with South Korea, Japan, and Mexico-Canada—the US trade deficit as of August 2019 has reached record deficit levels of $55 billion that month and an annual rate of nearly $700 billion a year. The trade wars have been totally ineffective in reducing the US trade deficit—if that was ever the goal.
If we look at the ratio of #exports to #GDP (currently 19.51%) and the #distribution by country (just about 20% to the #US), we realize that only about 3.9% of #China's GDP is coming from exports to the US.
That is less than the annual growth of GDP.
In other words, China's #economy grows by much more than all the exports to the US - every year.
This puts the potential pressure the #USA can put on China via protectionist policies in quite some perspective.
Of course, the actual exports have a multiplier, as suppliers to exporting companies would also suffer from a further closing down of the US economy.
But the main message remains: 80% of Chinese exports don't go to the US (and increasing as trade with #Africa grows), and overall the Chinese economy is less and less dependent of foreign #currency coming from exports. #TradeWar
-Harold Bachmann
Now some humorous Dilbert on this matter…
Links about China
Here are
some links about my observations on China. I think that you, the reader,
might find them to be of interest. Please kindly enjoy.
China and America Comparisons
As an
American, I cannot help but compare what my life was in the United
States with what it is like living in China. Here we discuss that.
The Chinese Business KTV Experience
This is
the real deal. Forget about all that nonsense that you find in the
British tabloids and an occasional write up in the American liberal
press. This is the reality. Read or not.
Learning About China
Who
doesn’t like to look at pretty girls? Ugly girls? Here we discuss what
China is like by looking at videos of pretty girls doing things in
China.
Contemporaneous Chinese Music
This is a
series of posts that discuss contemporaneous popular music in China. It
is a wide ranging and broad spectrum of travel, and at that, all that I
am able to provide is the flimsiest of overviews. However, this series
of posts should serve as a great starting place for investigation and
enjoyment.
Parks in China
The parks
in China are very unique. They are enormous and tend to be very
mountainous. Here we take a look at this most interesting of subjects.
Really Strange China
Here are
some posts that discuss a number of things about China that might seem
odd, or strange to Westerners. Some of the things are everyday events,
while others are just representative of the differences in culture.
What is China like?
The
purpose of this post is to illustrate that the rest of the world,
outside of America, has moved on with their lives. That while they
might not be as great as America is, they are doing just fine thank
you.
And while
America has been squandering it’s money, decimating it’s resources,
and just being cavalier with it’s military, the rest of the world has
done the opposite. They have husbanded their day to day fortunes, and
you can see this in their day-to-day lives.
Summer in Asia
Let’s take a moment to explore Asia. That includes China, but also includes such places as Vietnam, Thailand, Japan and others…
Some Fun Videos
Here’s a collection of some fun videos taken all over Asia. While
there are many videos taken in China, we also have some taken in
Thailand, Vietnam, Cambodia, Korea and Japan as well. It’s all in fun.
Articles & Links
You’ll not
find any big banners or popups here talking about cookies and privacy
notices. There are no ads on this site (aside from the hosting ads – a
necessary evil). Functionally and fundamentally, I just don’t make money
off of this blog. It is NOT monetized. Finally, I don’t track you
because I just don’t care to.
You can start reading the articles sequentially by going HERE.
You can visit the Index Page HERE to explore by article subject.
You can also ask the author some questions. You can go HERE to find out how to go about this.
"A recent survey by the American Chamber of Commerce in China shows that 41% of the respondents considered relocating or had relocated manufacturing facilities outside of China, but only 6% were considering moving back to the United States. Southeast Asia was the top destination. "
-Townhall
This is an overview of the complexities and issues that a company must deal with in order to relocate their factory out of China and place it back in the United States. It’s not as easy as it sounds, and we discuss the issues involved independently outside of the contentious American political scene.
We discuss the functional and practical issues with relocating a factory back to the United States from China. Not, the political issues, nor the need for America to reclaim it's manufacturing base. Those are other issues that will not be addressed here.
Though, let it be clearly understood, that I stand with Donald Trump in that there is a serious need to restart the American industrial machine and fire it up back to a level of productivity in order for the USA to maintain a global leadership role.
This entire issue came to a head when President Trump “ordered” American factories currently in China to “uproot” and Return back to the United States. It made all the headlines, don’t ya know?
However, the truth is that is it is extraordinarily difficult thing to do. And no, as much as I would like all of youse guys to hire me, you just can’t hire an “expert” to handle things and expect them to be done to your satisfaction. It doesn’t work that way.
Sorry.
While there are ways to accomplish this task, there will be a hit in quality, price, and delivery time. All of these issues will affect the market share of the companies that agree to relocate. This damage to the market share for the companies involved should not be discounted. For many, it will manifest as a dance with death.
Here we discuss the most important issues that a company CEO, or owner would need to consider when contemplating relocating his company out of China.
Full Disclosure
For starters, I must make the full disclosure. Please take note that I was one of those “evil” Americans who relocated factories out of America and placed them in China. It was my job and maintained this role for a solid fifteen years if not longer.
Call me an a$$hole if you like.
It’s difficult being the person that everyone hates.
It’s not like I wanted to do it, so much as starving in a food-stamp line really sucked. I followed the money. You take what work is available and you do not question the person cutting you a paycheck. Sure beats scrubbing toilets, hauling manure, or judging the sex of chickens. Truth this.
It was difficult scraping by in Western Pennsylvania, West Virginia and Ohio. I was just happy to get a job any job when unemployment (actual) was in the double figures.
For decades, people like Trump’s trade director Peter Navarro have warned us that something like this would happen someday. But we were condescendingly told, This is capital seeking the most efficient market! And, anyway, if China screws with us, we’ll just make it ourselves.
Really? With broken-down buildings, a dispossessed workforce and no machinery? Unfashionable working-class people in the industrial Midwest were discarded long ago. They may as well have had “obsolete” stamped on their foreheads.
-Ann Coulter
Ah. Maybe you the reader are unaware of the existence of the “rust belt” and us sorry sacks that lived there.
Unemployment line. In this June 23, 2014 photo, people wait in line to meet with recruiters during a job fair in Philadelphia. The Labor Department reports on the number of people who applied for unemployment benefits last week on Thursday, Aug. 21, 2014. (AP Photo/Matt Rourke)
I was hired for that task and did it to the best of my ability for numerous companies throughout the late 1980’s into the new century. Once Bill Clinton came to office, it just seemed like the “flood gates” opened up and just about everyone wanted to uproot and move their operations to China.
So, I do know what I am talking about.
A map showing the location of United States manufacturing plants in China as of 2008. As today is 2019, you can well appreciate that all these plants are joint-ventures, and not organized as WOFE and thus the American ownership of these companies are at 49% or less, with the Chinese partner owning a 51% controlling stake in the factory.
And no, moving American factories back to America from China is not as simple as Donald Trump, Fox news, CNN, WaPo and the Drudge Report makes it out to be. It’s complicated. If handled poorly the entire American industry segment can be wiped out completely (rather than just simply outsourced).
Listen up!
Let it also be clearly understood that it was much easier to relocate a factory to China than it would be to reverse the effort, and relocate it to the United States. Yes. It’s like eating a delicious pizza. Once you eat it, you cannot regurgitate it up and present the vomit for resale. Now, can you? Nope you cannot.
We will cover some of these points in this article.
China makes everything
Most Americans are under the impression that the only things that China makes is cheap and useless junk. That is because of three things. [1] Ego, [2] Mainstream American media, and [3] Walmart.
The truth is that China is the manufacturer for the world.
Most computers are made in China.
Most clothes washers are made in China.
Most cell phones are made in China.
Most automobile engines are made in China.
Most transmissions are made in China.
Most tires are made in China.
So do not be under the erroneous assumption that it’s easy to relocate a factory back to the USA. These are, for the most part, not low-technology factories. (The low-technology factories have long since moved to even cheaper nations with less regulation, like Vietnam and Cambodia.)
Today, most American owned factories in China are much more advanced, than what is assumed. They are far more automated than the American mainstream news media lets on.
Take a look at what these factories make…
Trade between the USA and China.
ACME Widget Technology Inc.
To better help understand the issues involved, we will use a fictitious American company. This company is based on a number of actual companies that I worked at where I relocated the factories to China. It is an amalgamation of numerous actual companies that I am sorry that I'd rather not announce publicly. As I did sign NDA's at all the companies.
This fictitious company is called ACME Widget Technology Inc. This company was a very prosperous consumer appliance company that was established in the 1950’s and was a major player in the consumer market during the 1960’s into the 1970’s.
They manufactured a wide selection of consumer appliances ranging from “white goods” (washing machines, stoves, and other large appliances), to “kitchen appliances” (microwave ovens, toasters, coffee makers) to “Lawn and Garden” appliances (weed-wackers, lawn-mowers and chainsaws).
White goods and other large appliances on display in a well known appliance store.
At their peak they employed over 10,000 American workers.
They operated numerous individual specialized factories, each one customized for a specific product line. As such there was one factory for personal scales, a different factory for heated cooking appliances, a factory for outdoor grills, and another one for washing machines. For all the various product lines, there was, perhaps, 30 to 45 factories at the middle of the 1990’s.
Most of these factories were in the Southern states, with the bulk of the factories in Louisiana, Mississippi, Alabama, and Tennessee.
(They were initially in the North in the Great Lakes region, but relocated during the 1970's to the South East. They did so for lower wages (1/4 the rate) and the ability to skirt the onerous regulatory and union requirements.)
The ACME Catalog.
While the factories were in the Southern states to take advantage of the low labor rates, and “friendly” (at that time) business climate, the corporate offices were elsewhere. Marketing, Sales and the Commercial management offices were located in a suburb of Chicago. Perhaps you heard of it, Schaumburg Illinois?
While Engineering, Quality, Tooling and Test facilities were located within a days drive of any of the specialized factories in the deep South. Their offices were in the town center of one of the many numerous small Southern towns. Hattiesburg, Mississippi, perhaps you have heard of it?
Local engineering and related quality offices in small town America in the Deep South.
A 1980’s Hostile Takeover
In the 1980’s a group of investors seized control of the company. It was hostile, and thus the term “hostile takeover” become commonly used. (Remember the movies “The secret of my success”, and “Other people’s money”.) They laid off a significant percentage of the workers, shut down and sold off various factories and divisions (Remember the movie “Pretty Woman”?) and “Chainsaw” Al Dunlap?
It was a “bloodbath”.
Their goal was to strip-mine the company for personal profit. They felt that they could do with the company as they wished as they held controlling interest in it. And, since no one was doing anything to stop them from this (terribly unethical) activity, they were correct.
Without enforcement of the laws, or the selective application of laws... they functionally do not exist.
Given the crimes of the Washington oligarchy, this should be painfully obvious to everyone in America today.
After laying off thousands of people, Al Dunlap retired to a life of luxury and ease, playing golf and smoking cigars. Meanwhile the workers that he laid off ended up destitute, many lost their homes, and went into bankruptcy. Today, many live in mobile homes, and are employed in low-paying unskilled labor employment.
I was hired to move companies to China.
Within this contentious environment, where the wealthy and successful were guzzling XO and cavorting with high-paid hookers, (while us working “normals” were discarded as “useless riff raff”), they hired me to do three things;
Relocate specific factories to China
Create Joint Ventures with existing Chinese factories
“Farm out” specific product lines to existing Chinese factories and create a partnership whereas we would purchase complete products from them though our Purchasing organization.
They wanted to move the plants to China for the simple reason that the wages were far less, the rate of exchange USD to Yuan was in the favor of the United States ownership, and that regulations, laws, and controls were lax, or in many cases, not present at all.
The operational costs American facility vs Chinese facility + Logistics costs were like "night and day". It was absolutely mind blowing how much cheaper it was to manufacture products in China compared to the USA.
Not to mention, of course, that the Chinese were actively courting American businessmen to “sell their soul”, “sell out their countrymen”, for a life of ease, prostitutes and a never-ending supply of recreational drugs.
First, they hired slick American marketing firms and convinced giant U.S. companies to relocate manufacturing to China by providing $1 leases for comparable plants and abundant cheap labor. Wall Street fell for it.
Secondly, state-subsidized Chinese companies flooded U.S. markets with products at one-third the prevailing price. The result: In short order, most American manufacturers had to file for bankruptcy. Then, these same Chinese firms shamelessly swept in and bought up our manufacturers’ now-unused equipment for pennies on the dollar.We were asleep. Sure, it cost China some money in the early stages, but per their long-term plan, China became the world’s top manufacturer and resource for such fire-sale buy-outs at the same time. The plan was masterful, the U.S. and American stakeholders fell for it hook, line and sinker.
I personally observed this wholesale takeover up close from 1990 to 2010.
-Townhall
Note on the quote above: No American citizen can lease under the terms mentioned in the quote. Only the Chinese partner can take advantage of that lease arrangement. While the quote is a good one, it is very deceptive.
But moving into China was not as straight forward as it appeared. You just don’t hop on a plane with a suitcase full of cash, point to a factory and say “I want that one”. To operate in China (up until around 2008 or so) you needed to create a joint-venture partnership with an existing Chinese factory. So that is what ACME did. They partnered up with existing Chinese factories.
The primary advantages in having a joint venture in china was labor rates, regulations, and favorable trade terms. Anything else is speculative.
A comparison in hourly wages for manufacturing workers in the United States as compared to China.
The Dismantling of American Industry
These actions took place throughout the 1990’s and by the tail end of the decade, almost the entire product line for ACME was manufactured in China.
All in all, it took nearly a decade to move operations off shore without seriously affecting market share and the confidence of our customers. Our name brands remained intact. Commercial campaigns for the sales of ACME products were given top spots on television and through newspapers.
The Design, and Quality staff remained in the United States.
However, that too began to be outsourced as well. With Engineers from India, and China working alongside American Engineers. Eventually, the complete Engineering and Quality groups were wholly outsourced to China.
None remained in America.
Customer Service Staff at a CS operations room in India.
Customer Service activity was outsourced to India. None remained in America.
This remained true even after a flood of complaints about the quality of the customer service. They worked for a fraction of the cost of Americans, and with that pittance lived a upper-middle class lifestyle in India. The company savings went directly into the pockets of the owners of ACME.
Thus the resultant reorganization of the company resulted in very competitive prices that appealed to the major retailers. Walmart, Target, Sears, Home Depot, Walgreens and others all placed ACME Widget products in key SKU (Stock Keeping Unit) locations in their stores.
In other words, displayed predominantly, at eye-level on shelves, and in high visibility locations within stores.
A graph of the decline in American manufacturing employment (and conversely ability) in order to meet the profit targets of Wall Street, the globalist cabal that runs Washington, DC, and the progressive political leadership in America.
Product Placement in Stores
The complexity of product placement in stores is unknown to most Americans, but it shouldn’t be. The largest profits from the sale of ACME products went to the “Box Retailers”, not to the manufacturer. They made a profit margin of around 30% on each appliance, compared to the paltry 2-3% that the factory earned for making it.
Walmart
Sears
Target
JC Penny
Walgreens
K-Mart
Additionally, these stores placed pricing pressure on ACME to lower the price every year. Walmart had a policy of price reduction that equated to 1.5% off each model, each year.
Now this price reduction was not passed on to the consumers. Nope. The store kept the savings.
Though the price to the “Box Store” would decrease, the sales price would not. Thus resulting in a net gain in profits for the local stores of 1.5% each year for each existing product. This was important, as Walmart maintained a solid 30% mark-up over the factory cost. (The the factory cost mark-up was rarely more than 3%.)
That $100 vacuum cleaner cost $67 to make and ship. The store that you bought it from made $30, the factory made $3.
Globalism was fantastic for the wealthy. Their profits were never larger.
Though, not so good for the local, “Joe Blow” who had a family and needed to work to earn enough to meet the basics of a roof from the rain, cheap food to feed the family, and some beer to dull the senses.
Power Tool Isle in Home Depot in the United States. All of which are made in China and rebranded with American-friendly names.
As such, the profits were enormous for the company, and the owners (the ones that conducted the “hostile takeover”) rolled in the cash in mind-boggling amounts.
The amounts of profits were truly mind-boggling.
They used that money to “diversify” their company portfolio. They bought hotels, cruise liners, travel agencies, and were getting involved in Savings and Loan banking. Such was the high-flying life in the 1990’s. (Anyone remember the movie “The Wolf of Wall Street”.)
President Obama represented the Global Interests of a global socialistic community. He did not care for local Americans, as he viewed them as a part of an “old order” that must be discarded in favor of a new, more “enlightened” progressive way of doing things.
Unfortunately, many of these side ventures failed. Thus additional rounds of layoffs, and downsizing’s continued a pace.
This continued to be the story throughout the industry as the competition to ACME also implemented their modus operandi.
Then came the election of Donald Trump.
President Trump starts a “Trade War”
Donald Trump and Xi Peng.
In 2016 though 2019 he raised tariffs on Chinese made products. With the percentage of tariffs constantly increasing. This continued until late Summer of 2019 when he demanded that American companies working and trading with China return their operations back to America.
It most certainly shook the will of most nations around the world.
I know it shook Wall Street, and afterwards, globally all consumers and manufacturers started to slow down operations to take a slower more conservative bent on the matters at hand. They slowed everything way… way down.
It started in 2016, and over the next three years, the global economy started to slow down and cool off. Orders out of America limped forward hesitantly, while orders from Europe kept pace, but were more cautious than before.
Nothing “crashed” as predicted by the “screeching heads” on the “blue panel” debates on television. (All actors reading scripts, and playing roles, don’t ya know.) But things slowed down. Things cooled off. Investors became cautious.
I get a phone call.
Walking the dog on the beach.
In September 2019, I was walking my dog along the beach near my house when my cell phone rang.
I normally don't keep my cell phone with me. But, for reasons related to habit, I had it in my satchel with me.
An old boss of mine, from my ACME days, tracked me down (How he was able to do so, I do not know.) and wanted to know if I would be willing to help them sort out the issues related to relocating their factories back to the United States.
I should have said no.
After all, our history was contentious. For, as soon as I completed my tasks with ACME, they immediately fired me, and made me sign a NDA in order to guarantee that I could get food stamps. No back pay, no severance package nothing. I couldn’t even go back to my office to get my personal effects. Pretty harsh, especially when you consider my very own personal situation…
… I had a wife with a very serious mental illness. And I was splitting my time between dealing with insanity of work issues and visiting her at the hospital. The layoff, at a time when my wife was suicidal, was a severe hardship. Well, for me at least.
Maybe you can handle an hysterical deranged wife painting the bathroom mirror with fingernail polish, while you are trying to “hit the streets” looking for new employment. I could not.
But that’s life. No one gives a rat’s ass about you.
Dilbert comic. It’s so funny because it is (sort of) true. LOL
It’s (as they say in America) “just business”. It’s the “American Way”, don’t you know. And you, as an American, should know. This is the truth, and this is the way it is. This is the real deal.
In America… it’s “just” business.
Being laid off without notice, or severance really blows. But that’s the story of being an American worker during the last three decades. It’s the American way.
As was true through most of the 1990’s, treating employees as disposable paper cups often resulted in some bloody events.
But, in this case I said “yes” to my old boss. I asked a (relatively) enormous sum of money (expecting them to decline), and they agreed. Imagine that! I guess they were desperate.
After about two weeks of sorting out my personal affairs, we had a meeting in the conference room in one of their plush offices. It was on the 16th floor in this really nice (curtain wall) glass and steel structure that resided in Florida. What a life. They had really been doing well. Everything was new, and polished. It was a big change from the “hand me down” desks and cubicle walls that I dealt with back in the 1990’s.
Yeah. It looked something a little like this…
Corporate Headquarters
After the initial pleasantries and handshakes (You know, how was the flight, and did I like the hotel, etc.) , they asked me what was involved in moving the factories back to the United States, and so I put together some bullet points and made a PPT presentation to the upper management.
Making a PPT presentation.
Capital Expenditures
The first point raised, of course, was costs. If you are going to move operations from one physical location to another, you will incur costs. What would those costs be?
The costs incurred would fall under numerous general categories;
Relocating heavy machinery and equipment (or the purchase of the replacements thereof).
Rules, fees, taxes and the costs associated with agency regulations that one must pay in the United States to operate a factory there. Do not be under the impression that you can just cut down a tree, install a power line, pave a road, and start putting up a pole building without having American government regulation at all levels involved.
Fees, charges, and associated bribes that you must pay when you are dealing with local American government. Make no mistake this is a very real issue and one that is kept quite hidden. After all it is quite illegal, and you all don’t want the pristine agencies of the FBI and DOJ putting their retainers on your efforts.
Rent or construction of new facilities.
The hiring of new staff to replace the Chinese staff. This will include all benefits as well as the various associated taxes, fees and social security benefits.
Associated relocation costs.
Associated tariffs in moving product inventory, and equipment from China to the USA.
It’s not so simple.
If you want to do something, it will cost money. Imagine that you are moving your house from Illinois to Los Angles. There will be costs. There will be the costs for the movers, the gas, the rental of the vehicle and the employment of the moving crew. The same is true for a business. There will be costs.
Some Key Points
Now, I would like to make some relatively important key points regarding moving a factory to China as compared to moving it back to China.
Firstly, consider what ACME did when the relocated the factory from America to China.
In the mid 1990’s, ACME formed a joint partnership / joint-venture with a Chinese company. ACME would take 70% of the profits, and the Chinese partner would take 30% of the profits.
ACME then shipped all their heavy manufacturing equipment from America to China. They physically removed it from the American factories, and shipped it to China. Then at the factory, they utilized both American and Chinese labor to set the equipment up, debug it, and shim the mechanisms into working condition.
However, it was well understood that once you set up a factory within China, you MUST have partial Chinese ownership. You absolutely cannot operate any factory in China without significant Chinese ownership. At that, let it be well understood that the Chinese co-owners MUST have at least 51% ownership in the company. The American owners will NEVER have more than 49% ownership of anything that they own and bring to China. It is Chinese Law (at least back in the 1990’s it was).
Also, let it be well understood that the upper management at ACME knew full well that this was the case. But they did not care.
Their focus was on the short term profits, as was their charge. They fully expected that the company would eventually collapse long before there would ever be the need to relocate the factories back to the United States.
Semi-automated production line typically used in the appliance assembly. Picture is of a Bosch line prior to export to a Chinese assembly line.
Thus, any equipment brought into China will now require the co-owner’s (Chinese national) approval to remove from the Chinese factory and ship elsewhere.
In practice, this is often a big “NO!” There are some cases where the Chinese owner will permit the removal of old or antiquated equipment at a price. Often the price will be at market value or higher.
So, when ACME moved the equipment into China it was very simple. They moved it, and used their inherent labor to set it up and debug.
Yes, so when ACME relocated entire factories to China, it was a simple matter of firing all the American employees, boxing up the equipment, and handing it over to a Chinese partner. They, in turn, would own the equipment, train and staff the Chinese workers to use the equipment and ship the products back to America.
It was a model that worked well from the 1990’s up to around 2019. Everyone was doing it. American industry, as was Wall-Street, were all focused on quarterly profits. They could not see further than a few years in the future. The Chinese, on the other hand, think in terms of centuries.
However, to remove the equipment, they will NOW need the Chinese co-owner’s approval. This will often not be easy and it will come at a price. For they will be asking permission from their (now wealthy) Chinese partner to give up all of the capital equipment that resides in his factory. (And make no mistake, at 51% ownership, it is his factory.)
Please keep in mind that the cost of these manufacturing and assembly machinery are in the millions of dollars. As an example, an automated “brake” used to cut and bend aluminum sheet will equal the cost of a Lamborghini. Now, figure that each factory might have ten such machines at minimum. That is a lot of money.
Factories utilize so many different types of automation, that it is difficult to quantify exactly which ones are critical to the production end line goal, and which ones can be replaced by American manual labor. Photo is of an actual American joint-venture factory within China.
In short, what all this means is that American ownership of a Chinese factory is, at best, at 49%. As such removal of the equipment to America is problematic and will probably NOT occur. The Chinese business partner would keep the equipment, dissolve the partnership once the sales dissolve (easy enough under Chinese law) and end up owning the complete factory himself.
Thus the American partner is then forced to purchase all brand new assembly equipment from scratch and start off all over again. Only this time, due to the ravaging effects of inflation, the cost of the equipment is much more expensive than the initial purchase in the 1980’s and 1990’s. Thus capital equipment expenditures would seriously end up in the hundreds of millions of dollars alone.
Relocating a factory from China back to the United States is a prohibitively expensive exercise that costs an enormous amount of money. The only way around these costs are to employ Americans in an entirely manual assembly role and cut out all automation, quality checks and basic assembly standards.
Quick summary;
American manufacturing capital equipment is 100% American company owned when shipped to China.
American manufacturing capital equipment is only 49% American owned when shipping out of China.
The difference in ownership will result in serious costs regarding the purchase of new capital equipment equipment for use within a factory in the United States.
If the American management wants to go the legal route to resolve any issues with the Chinese partner, the Chinese legal system will rule in favor of the Chinese national. They ALWAYS rule in favor of the Chinese national. This is the way it works.
To put this in another way; to purchase new automation equipment for an American factory will entail enormous costs.
The only way that a business can purchase replacement capital equipment is with favorable banking and loan arrangements, but even with that, the amortization costs on most typical appliances will be on the order of an increase in 30% to 55% increase in the costs of the appliance.
Bill Clinton was quite satisfied with the trade arrangements with China, and supported it whole heartedly.
Is it fair? No. But that is the situation that President’s Clinton, Bush and Obama were all quite satisfied with.
Technically Skilled Leadership
Another issue is the technical staff.
This is something that is given quite a bit of “lip service” in the industry, but is actually just a big smoke screen. If talented technical staff were actually important they would never be laid off. Right?
Like I said. It’s a lot of words with no substance.
How to fire someone in America. Soften the blow so they don’t go postal on you.
Well, that is all just fine and day, except when you are talking about relocating a factory.
For you NEED these people, and you NEED their expertise. Otherwise, you will have all sorts of problems in production, resulting in quality disasters, and severe production delays.
Production Engineers are critical to the smooth operation of the production lines in a factory.
No we are not talking about line supervisors, and accounting clerks. We are talking about the engineers that maintain and operate the complex automated machinery. We are talking about the design, industrial, manufacturing, and mechanical engineers that make the production lines hum efficiently.
Oh, yeah.
They used to be plentiful in the United States, but over the last three decades they have become a dying breed. Most, once laid off, could not find other similar work and so they migrated into other occupations.
When our nation’s coal miners found themselves out of work, the left-media gleefully told them that they need to “learn to code.” After all, they were dinosaurs working, literally, with dinosaur fuels and needed to be reeducated for the global, technological economy.
The condescending chant that rained down from the privileged ivory towers of the leftist elite: Learn. To. Code.
-Legal Insurrection
Some became bakers, while other ended up delivering mail for the Post Office. Some became teachers, while others became Bus Drivers. Maybe some even “learned to code”, as the Mainstream News Media laughingly taunted the unemployed professionals.
Design, production, manufacturing, industrial, quality and maintenance engineers are key talents that all factories require. Though over the last three decades, most of them have been Chinese, not American.
They, like myself, were forced to migrate to where the work is. If you are lucky, you never need to change and swap jobs. But during the 1990’s this was a near impossibility.
There are very few active technical factory experts in the United States today that are able and willing to relocate to a new post-China startup. They exist, but are decidedly no longer as plentiful as they once were. As such, once you find them, you will need to pay them a premium salary for their knowledge and experience.
Manufacturing engineers make sure that the process is set in place and the the workers can best manufacture complex and high quality products. Without them, the factory will be plagued with all sort of quality problems, arguments, failures and delays.
Now, that does not mean that they cannot be found.
They exist and are available in America. However you will need to pay them American salaries, and American benefits. Often with a benefit package that is ten times that of what the companies have been accustomed to paying their Chinese technical staff.
Process Engineers have an important role in the successful operation of any factory, especially those involving chemical and treatment processes.
So ,yes there are technical staff that can be hired within America to work and maintain the factories. However, the cost to employ them will require a budget at lest ten times larger than the budget that is already allocated for the staff at a comparative Chinese factory. This cost will be added on to the cost of the product manufactured at the factory.
Training of staff
Compared to the two previous issues, this one is not as serious. It simply means that all those American workers that ACME must hire to work in the newly relocated factory must be trained. You would think that it wouldn’t be too much of an issue. We have been training workers to work in factories in America for many, many decades.
Only one problem though.
Factory manufacturing techniques have changed drastically since the mid 1990s. The Chinese staff will need to train unskilled American workers to operate the relocated equipment, and learn the process parameters.
The people who know how to make the specialized products that ACME makes no longer exist in the USA. The Americans that used to know are all gone. Either they found new work when they were fired back in the 1990’s, or are now retired.
The ones that know how to operate the (new and improved) machinery, check the quality of the product, and are knowledgeable to quickly debug the process when things go wrong are all Chinese.
Which means, of course, to train your new workers, you must use existing skilled Chinese workers to do so.
Chinese supervisory staff training an American worker on site in America.
You have two options;
Obtain a H1-B visa for the Chinese staff and use them to train and supervise the new American workers.
Ship all the new American workers to China for hands-on training at the Chinese factory prior to shipping the equipment back to the United States.
Both options have been used by various companies over the last few years. Each option has some pros and cons associated with it.
Chinese management training Americans on site in the factory inside China.
However, the reader should note that due to the availability of the H1-B visa in the United States, the ACME leadership discovered that they would have to wait a year to apply for new visas, as all the existing visas were taken by software engineers out of India. Thus forcing the more expensive route to ship Americans to China to train how to use the equipment.
Training of Americans to work in the returned factory from China will necessitate the training by Chinese nationals. This will be conducted either in China or in the United States depending on the availability of visa access.
Breakup of Global Relationships
Of course, in order to return an American factory out of China and back to the United States, there will have to be a period of contentious negotiation between the owners.
PPT on the key points in negotiating with the Chinese.
After all, and I hope that I made this clear, an “American” company residing in China is NOT 100% American owned. No. Instead it is a joint venture / partnership with the Chinese partner owning controlling interest of the entire factory, technical skills, intellectual property and capital equipment.
For any American company to do this will create a period of discomfort and strife, as most Chinese owners will not want to relinquish any controlling interest, nor deplete their internal resource pool. He would fight, aggressively, any attempts to dissolve the relationship, ship components back to the United States and have access to stock and supplier interests.
Trade negotiations between Xi Peng and Donald Trump. The Chinese are tough negotiators. Do not think for a minute that they will not take full advantage of any situation.
This entire matter would be contentious. As a result, most American corporate executives would refer the entire matter to their American legal branch to handle. But, and you all should know and realize this, American law has no jurisdiction in China. Chinese law is what is followed, and the courts will almost always rule in favor of the Chinese nationals.
The Chinese legal system will ALWAYS rule in favor of the Chinese national.
When ACME tried to dissolve their partnership with the joint venture, and went the Chinese legal route, the courts ruled that not only did the American firm not have any legal standing, but they then awarded the American 49% legal controlling interest to the Chinese factory owner as punitive punishment.
Thus as a result, the ACME American company ended up with 0% ownership of the company, with their Chinese partner ended up with 100% ownership.
China is a serious, serious nation. They do not fool around, and they have laws that protect Chinese nationals. Americans should realize this and consider alternative solutions to any legal issues instead of going through the “proper” legal avenues.
Loss of Market Share in China
How things have changed. I’ve since returned to China many times, and I’ve watched its economy grow to become the second-largest in the world.
Based on purchasing power parity (PPP), it’s the largest. And according to Credit Suisse, the size of China’s middle class has for the first time overtaken the U.S. to become the world’s most populous—109 million Chinese compared to 92 million Americans.
-Frank Talk
It might surprise many typical Americans, but China is a POTENTIALLY much larger consumer market than America is.
Presently the United States is the world leader in consumer product purchases, but that will change in the future. Most projections place China in the leadership role in the early to middle 2030’s.
China is growing, and the amount of growth just boggles the mind, and Americans are absolutely oblivious to this fact.
Thus, if you want to have a global “slice of the pie” for what ever products you make, you will need to sell them in China.
Now, in order to sell products in China, you will need a Chinese “presence”. This can be a regional headquarters, a partner factory, or some other kind of legal entity to “open the door” for your products to be sold in China.
China is a huge market that can be exploited by American factories and businesses. However, they must be free to be able to sell their products to Chinese consumers. Were China to implement Trump-style tariffs, this will not occur, and Germany, Japan and Korea will capture those markets.
Do not be under the erroneous assumption that you can just carry some of your products to China and then just sell them openly. Nope.
All products must meet Chinese regulatory requirements.
It is similar to that in the USA. (Remember the Billionaire Boys Club where they were having a difficult time importing Mercedes Benz automobiles into the USA because they would not meet the emissions requirements?)
Now, it is far, far easier to sell American made, or American sourced (out of a Chinese joint-venture, or a WOFE) than trying to exporting the product directly to China. There is already a legal presence within China.
An opportunity exists for American companies to sell to China. However, they must do so carefully and maintain their name recognition.
Corporate Identity
What ever you do, you must maintain your logo and trademark or else you would no longer have any kind of “product identity” associated with your products. However, if you have partnered with a Chinese factory to make your products, then THEY, not you, own the registration and trademarks within China.
By relocating the “American” factory to America out of China, ACME ran the risk of totally closing off the Chinese Market. This is because their Chinese partner OWNED all royalties, Logos, Copyright, and trademarks for the ACME brand. Under Chinese law, as practiced, the Chinese person who first manufactures a logo, or uses a symbol automatically owns the rights to it. Once ACME leaves, they can never return back to China and use their brand. If they did so they would be in violation of Chinese law.
Long Term Consequences
I long ago concluded that the world will eventually essentially divide into two spheres: China and the United States. But what I have not been able to figure out is what that will mean overall nor what that will mean for particular regions and countries. In particular, I get stuck when trying to figure out which countries will go to which side.
I have always believed some countries will essentially be required to choose between the United States and China, some countries will want to choose between the United States and China, and some countries will want to straddle between the United States and China.
-China Law Blog
China is growing and it appears that the United States does not appreciate competition. The USA wants to maintain it’s role as a global superpower, fighting and policing the globe by taxation of it’s citizenry. While China is looking for economic dominance through cooperation with national partnerships.
You know, you do not need to relocate the factory back to America. you can relocate it to another nation with similar conditions to China. Here, you can make a joint venture partnership between the Chinese factory and a local factory, say in Cambodia, Vietnam, or Laos.
There are work-arounds. Products made in China, can be shipped to a nation that does not have Trump-level tariffs against it. The shipping container would then go to this second “pass through” nation, the documents would then specify that it was made and originated out of the third nation. Then shipped to the United States.
Of course, it is possible that the economic pain China is feeling from the trade war has been mitigated by some businesses trying to “work around” the tariffs. This is typically done by exporting to an unsanctioned country where some “value added” is created before being shipped onto the final destination – thus avoiding the tariff.
This is a tried and tested formula with one of the more extreme examples being Russia. It takes time to find alternative suppliers from different countries or to develop domestic ones. When sanctions were first imposed on imports from the EU, Russia companies used business relationships to import EU products via 3rd party countries, including Belarus. This put up costs, but ensured supply chains could continue functioning until alternatives were found.
If that has indeed been happening as a result of the US-China stand-off, the most likely avenue is Vietnam. While US imports from Korea, Malaysia and Taiwan have certainly increased, it is from Vietnam that they have surged. ...
... It is difficult for an economy to build extra production capacity and related supply chains in a short period of time to substitute even part of the production from China. Vietnam’s manufacturing production growth was quite flat at around 10% year-on-year in 2019. It was even slower in 2018. It is hard to believe that the surge in Vietnam’s exports to the US (in US dollar terms, remember) has all come from production within Vietnam.
The obvious response is that it hasn't. Chinese exports to Vietnam have displayed a strong upward growth trend in 2019, which is in contrast to the slowdown in 2018, and also in contrast to the moderately flattish growth of Vietnam’s production.
-ING
This is a mature solution. Many of the products that American believe are made in Germany, Japan and Korea are actually made in China. They are made in China and then shipped and stored in the respective warehouses for later shipment to the United States.
Pass-through trade option.
This option might increase the price of the products from 1% to 5%. This is a viable solution as opposed to the 30% to 40% tariffs that Donald Trump is talking about.
"The Trump administration made a very serious miscalculation in launching the ‘trade war’ with China. It believed that either, or both, the leadership of China would submit to the Trump administrations threats or the Chinese population would not be prepared for a serious struggle with the US. Both calculations have proved entirely wrong. China’s leadership did not surrender to but hit back against the US attacks. Furthermore anyone who follows China’s domestic discussion, on what is now by far the world’s largest internet community, knows that this line was strongly supported by the Chinese population."
- China prepares for economic ‘prolonged war’ with Trump
There are many considerations that a company must take into account when faced with a Presidential decree that the company relocate from China to the United States. It’s a complex issue with many facets.
When discussing relocation of American factories back to America you must also include the contentious corporate history over the last four decades that led up to the situation that exists today. Nothing happens in isolation. It is all the result of society, and corporate behaviors that are nurtured by the political class in Washington D.C..
In any event, it is up to each individual company to determine what actions would be in their own corporate interests. I would advise obtaining knowledgeable legal representation, and employment of experienced “old hand” expats residing in China, rather than some “expert” out of an “ivory tower” in Los Angles.
Other great articles
Here’s some articles by others in the business. They pretty much say the same things as what I am presenting here. Only they are better written. LOL.
Here are
some links about my observations on China. I think that you, the reader,
might find them to be of interest. Please kindly enjoy.
China and America Comparisons
As an
American, I cannot help but compare what my life was in the United
States with what it is like living in China. Here we discuss that.
The Chinese Business KTV Experience
This is
the real deal. Forget about all that nonsense that you find in the
British tabloids and an occasional write up in the American liberal
press. This is the reality. Read or not.
Learning About China
Who
doesn’t like to look at pretty girls? Ugly girls? Here we discuss what
China is like by looking at videos of pretty girls doing things in
China.
Contemporaneous Chinese Music
This is a
series of posts that discuss contemporaneous popular music in China. It
is a wide ranging and broad spectrum of travel, and at that, all that I
am able to provide is the flimsiest of overviews. However, this series
of posts should serve as a great starting place for investigation and
enjoyment.
Parks in China
The parks
in China are very unique. They are enormous and tend to be very
mountainous. Here we take a look at this most interesting of subjects.
Really Strange China
Here are
some posts that discuss a number of things about China that might seem
odd, or strange to Westerners. Some of the things are everyday events,
while others are just representative of the differences in culture.
What is China like?
The
purpose of this post is to illustrate that the rest of the world,
outside of America, has moved on with their lives. That while they
might not be as great as America is, they are doing just fine thank
you.
And while
America has been squandering it’s money, decimating it’s resources,
and just being cavalier with it’s military, the rest of the world has
done the opposite. They have husbanded their day to day fortunes, and
you can see this in their day-to-day lives.
Summer in Asia
Let’s take a moment to explore Asia. That includes China, but also includes such places as Vietnam, Thailand, Japan and others…
Some Fun Videos
Here’s a collection of some fun videos taken all over Asia. While
there are many videos taken in China, we also have some taken in
Thailand, Vietnam, Cambodia, Korea and Japan as well. It’s all in fun.
Articles & Links
You’ll not
find any big banners or popups here talking about cookies and privacy
notices. There are no ads on this site (aside from the hosting ads – a
necessary evil). Functionally and fundamentally, I just don’t make money
off of this blog. It is NOT monetized. Finally, I don’t track you
because I just don’t care to.
You can start reading the articles sequentially by going HERE.
You can visit the Index Page HERE to explore by article subject.
You can also ask the author some questions. You can go HERE to find out how to go about this.
![The reasons clearly have to do with [1] the US economy softening in the 3rd quarter combined with [2] a growing discontent in the farm sector. This discontent is over Trump’s handling of the trade dispute that was beginning to bite hard on US farm sector sales. You see, American farmers were heavily dependent on exports to China.](https://metallicman.com/wp-content/uploads/2019/10/5107_Fig5-1024x718.png)
