China and U.S. Should Stop Finger Pointing and Get to Work
Guest Author: Jason Rines is CEO of Media Heights LLC, a data product supplier for the direct mail and e-mail marketing industry as well as for consumer healthcare data for pharmaceuticals, OTC and health clientele. He is the founder of Raging Debate LLP, a developing social media news platform dedicated to conducting research on building a rounder world. Mr. Rines had a key role in establishing the Opt-In e-mail advertising industry in the late 1990s.
The U.S. blames manipulation of the Yuan for U.S. domestic economic problems. China blames decreased consumption and threatened trade sanctions in the U.S. for stressing trade relations. While there are some effects from these sources, economic health for both countries depends much more on what they do domestically. The two countries should be seeking ways to increase employment on home soil while seeking to balance trade in mutually beneficial ways.
Much of the rhetoric on both sides is political posturing for “homeboys”. Unfortunately, the temporary expediency of pointing the finger elsewhere, to promote electioneering or to stabilize citizen opinion, creates polarization of public opinion in both countries that can’t be easily reversed.
Social Unrest in China
China has a real concern about social unrest if the Yuan is revalued upward. Farmers have been pushed off the land to work in manufacturing industries that have not delivered what was expected by workers. Worker suicides have been reported and have led to local pay increases in response. China can effectively revalue the Yuan by increasing worker pay across the board. This can be implemented over several years, possibly increasing worker pay two, three or four times in just a few years. This will tend to reduce exports because they will cost more in Yuan (higher labor costs). The exchange rates could remain nominally the same but the effect would be to raise costs for Chinese products in dollars.
The loss in exports would be offset by increased consumption by higher paid workers in China. The result in the rest of the world would be cost inflation for Chinese goods, but that would be offset by more production elsewhere. This production, which can’t be accomplished with the current cost of Chinese products, is what is desperately needed in the U.S.
The systematic rapid increase of wages in China is de facto revaluation of the Yuan that can be accomplished with just the opposite of social unrest. Chinese workers are paid more and have more goods accessible for purchase. It also addresses a global trade imbalance and benefits major trading partners such as the U.S.
Energy Solutions in the U.S.
The U.S. has economic sustainability issues. While politicians and media focus on the long term issues of social “entitlement” costs, a bigger future financial burden could result from energy costs. At current oil prices, the U.S. is shipping $200-$300 billion out of the country every year. At $150 per barrel (remember 2008?) that increases to more than $500 billion. At $300, which is certainly possible, if not likely within a decade, the cost is over $1 trillion, every year. And that $1 trillion a year assumes that we maintain oil consumption and domestic production at current levels. Domestic production is likely to continue to decline and consumption is likely to increase.
With active support of the fossil fuel industry lobby, the U.S. government has avoided formulating any significant policy that could support entrepreneurial activity to develop new sources of energy.
While tax incentives for domestic manufacturing may be useful, price increases for Chinese products and the stabilization of energy costs in the U.S. would be even more important in increasing domestic production in the U.S. The critical need to get to a better balance between consumption and production in the U.S. is an achievable goal.
Both China and the U.S. have decentralization issues. In China, the people need to develop more participation and “ownership” of their means of production. China must avoid building a society where a couple of million are extremely wealthy, another couple of million are upper middle class and a billion people remain at a subsistence level. That can only be accomplished if they develop an “ownership” society where control of production and opportunity are widely distributed.
The U.S. must address the centralization of wealth and economic control that has occurred under a banking oligarchy that has built over the past few decades. Americans are also facing “ownership” society issues.
No finger pointing can help with these issues. What is needed is domestic work in both countries. And the work will be arduous in both cases.
Keep Tariffs at a Minimum
Tariffs amount to using a stick to get action. What we have discussed above is more in line with using carrots. Some tariffs may be necessary, especially to repatriate multinational profit from domestic sales of foreign production. However, tariffs are often lose-lose situations. Costs rise in the importing country and production is diminished in the exporting country. Losses occur on both ends.
The carrot approaches discussed earlier lead to win-win situations. The difficulty in using the carrots that will benefit the many stems from the disadvantage that will be experienced by a few. Energy and financial oligarchy must be diminished in the U.S. and central control bureaucrats must lose power in China.
A Few Must Be Disadvantaged to Benefit Many
The processes we have discussed are those of distributed capitalism. Oligarchy and central control would diminish. The vehicle that turned upside down in the ditch is not suitable to be winched out, righted and driven on down the road. What got us to 2007-08 is not what will get us into the coming decades.
The global citizen must have a vested stake in prosperity and solving problems. That all said it is not how we fall but how we decide to get back up and start running. Large-scale creative destruction and Malthusian ideologies are not the way to go. They risk a response of vigilante justice rather than mankind evolving to the next stage in a beneficial fashion as we should.
A few will be disadvantaged in order for many to benefit. The big problem is that the few a hold the reins of power.