“Wal-Mart convenes first board meeting in China.” “The new Chevy Equinox: Made in China….” “China's steel industry looks abroad.”
What's going on here? These are just a sampling of recent headlines that point to what may be the start of a disturbing trend: The gradual displacement of the United States as the world's leading manufacturing power.
I've been reading Edmund Morris' “Theodore Rex.” Near its beginning, when Roosevelt traveled to Washington to move into the White House following the assassination of President McKinley, Morris describes the economic condition of the United States.
As you read Morris' account of U.S. dominance of the world's markets at the beginning of the last century, you can't help but make comparisons to the rising industrial power of China at the start of this one.
“Indeed, it could only consume a fraction of what it produced,” Morris wrote of the United States in 1901. “The rest went overseas at prices other exporters found hard to match.”
Today, that can be said for much of what China makes, using the same dollar-a-day wage scales that were prevalent during Roosevelt's first term. China enjoys other advantages the United States had in those days: abundant natural resources, labor and energy supplies. But there is a difference. Back then, business leaders from other nations weren't roaming this country looking for deals that would allow them to cut a few dollars off the price of a t-shirt.
According to reports about its board meeting there last month, Wal-Mart bought $15 billion in goods from China in 2003, accounting for almost 10 percent of the United States' trade deficit with China.
As it has elsewhere, Wal-Mart is trying to tap the Chinese market, opening 35 Super Centers in 17 cities since 1996. But Wal-Mart's China sales pale beside the impact its purchases of Chinese products have on the U.S. market.
U.S. textile manufacturers say Wal-Mart's policies of out-sourcing much of its inventory — more than 80 percent of the company's suppliers are based in China — have contributed to the loss of more than 400,000 U.S. jobs.
Wal-Mart isn't alone in its decision to buy overseas no matter how many jobs it costs customers in the United States. General Motors recently launched an advertising campaign for a new Chevrolet sports utility vehicle. The headline over the ad reads “An American Revolution,” although the car will be made in Canada and the engine brought in from China.
The list goes on. An executive with Liz Claiborne Inc. said recently he couldn't wait until his company could take full advantage of China's low cost production after U.S. quotas on textile imports from China expire at the end of this year. Officials of other companies appear to be making similar plans for tapping into China's cheap labor markets.
It will be interesting to see their reaction when they wake up in a few years and see that the value of stock in their companies denominated in the Chinese yuan rather than the dollar.