July 28, 2021

It’s the Economy: Come On, China, Buy Our Stuff!

It wasn’t supposed to be this way. In 2000, the United States forged its current economic relationship with China by permanently granting it most-favored-nation trade status and, eventually, helping the country enter the World Trade Organization. The unspoken deal, though, went something like this: China could make a lot of cheap goods, which would benefit U.S. consumers, even if it cost the country countless low-end manufacturing jobs. And rather than, say, fight for an extra bit of market share in Chicago, American multinationals could offset any losses because of competition by entering a country with more than a billion people — including the fastest-growing middle class in history — just about to buy their first refrigerators, TVs and cars. It was as if the United States added a magical 51st state, one that was bigger and grew faster than all the others. We would all be better off.

More than a decade later, many are waiting for the payoff. Certainly, lots of American companies have made money, but many actual workers have paid a real price. What went wrong? In part, American businesses assumed that a wealthier China would look like, well, America, says Paul French, a longtime Shanghai-based analyst with Access Asia-Mintel. He notes that Chinese consumers have spent far less than expected, and the money they do spend is less likely to be spent on American goods.

There is a long list of missteps, French says. Home Depot, for example, overestimated the desire for D.I.Y. home projects and high-end materials in a country with an unbelievably cheap labor force and a thriving black market. Kodak learned it couldn’t forever dump its unsold film on a consumer base looking to make their first cameras digital ones. The Gap had to learn that a thriving middle class does not want to dress shabby-chic. In general, French says, European companies have done much better than American ones because they’ve had to practice selling across borders and cultures for decades.

Many U.S. executives also assumed that as China got richer, its citizens would spend more of their income. But the opposite has happened: the country’s savings rate is now climbing faster than its spending. China’s households save more than a quarter of their money, while Americans save less than 4 percent.

Some argue that this is because of millenniums-old Confucian frugality. Others say it’s more prosaic. When China joined the W.T.O. in 2001, it famously conceded that it would break “the iron rice bowl” — to get rid of the millions of decent-paying (for China) government jobs with fairly generous (for China) benefits. Partly as a result, a successful professional in Shanghai knows that she will have to bear any future health care or retirement costs for herself and, because of the one-child policy, for her parents and grandparents too.

Yet probably the greatest barrier to Chinese consumption is the policy of China’s Central Bank. Every month, the United States buys around $35 billion in goods and services from China and sells around $11 billion back. That, of course, leaves a $24 billion trade deficit. Currencies work like any other salable good in that they adjust based on supply and demand. Every month, the United States is demanding a lot of renminbi and China is demanding few U.S. dollars. The natural result should be for the dollar to get weaker as the renminbi gets stronger.

Article source: http://feeds.nytimes.com/click.phdo?i=e7b7639617324fe72fe1d77cbac5d2ab

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