OPINION
Made in China

Recently, one of my grandchildren asked me to buy him a package containing model airplanes that was for sale at an air museum. The models were tiny, but attractive. My grandson was quick to point out that the price was only US$5. I was quite surprised with that and purchased the planes for him. Once the plastic bubble wrap was removed, I was able to closely examine one of the planes. On the underside of it, I read "Made In China."

I thought to myself, this really shouldn't surprise me. Chinese products are becoming pervasive. And, I'm sure that it doesn't surprise you either when you purchase something -- almost anything -- nowadays and read the label "Made in China." The fact is, more and more of our products are coming from China.

Previously I discussed the implications of our trade imbalance with China. As China continues its path as an emerging economic giant, there will be long-term implications that have a global affect.

Following Japan's Lead

Beginning in the late 1940s, Japan started working itself out of its post-war disaster. Japan's economy was in ruins. Thanks to the assistance of the United States, and the work ethic of the Japanese, the country gradually emerged from its deep economic depression.

At first, Japanese products were quite inferior. In fact, the label "Made in Japan," was surely a sign of a cheap, second-rate product. Slowly and surely, the country's product quality improved.

Along with the improvement in the quality of its products, Japan's product mix steadily became more sophisticated and complex. Today, Japanese products are not only of the highest quality, they are technologically advanced. Think of all the electronics and computer products that are made in Japan, not to mention premium autos and trucks.

Sure, it didn't happen overnight, but it did happen. Today, I don't think that any of us hesitate to purchase a Japanese product because of quality concerns.

Taking a Similar Path

A similar thing, in my opinion, is happening with China. China had long been in the economic doldrums. In fact, it was regarded as a third-world country a short time ago. All of that has changed now.

Today, China has a trade surplus with the United States -- which obviously means that we have a trade deficit with them. They are exporting far more to us than we are to them.

How about their products? Are they improving both in quality and complexity? The obvious answer is yes. More and more we are seeing computers and hi-tech components and products made in China. Today, the country is also manufacturing auto parts. Soon, if what I read is accurate, China will be exporting its own brand of autos. I have no doubt that they will be reasonably priced and reliable.

The Road to Becoming an Economic Giant

What is happening is a global exodus of manufacturing and assembling from industrialized nations to emerging nations. The large manufacturing companies are, naturally, going where the cheap labor is. I think, at some point, China's labor costs will begin to increase and the flight of manufacturing will move from China to countries such as Indonesia, and maybe some day, to Africa. But, this is many years away.

It is a natural economic phenomenon that capital will follow cheap labor. Industries are competing to produce the best products at the lowest possible costs. Since the major component of most products is labor, industry will follow the labor "trail." Where there is cheap, dependable labor, you will find industry at its door.

An acquaintance of mine owns a large manufacturing company. He frequently travels to China where he has several manufacturing plants. He explained to me that he became frustrated trying to control costs at his U.S. plants. His per-employee monthly health insurance expense alone for his U.S. employees was costing him the equivalent of his total per-employee monthly labor costs in China. He had no alternative but to move most of his manufacturing there.

He told me that when his American colleagues complain about the loss of manufacturing jobs to China, he tells them to "get used to it, it isn't going to change."

Emerging Scientific Know-How

One thing that really troubles me about this situation is that China is, slowly but surely, gaining all kinds of technological intelligence from us. In fact, I recently read that a U.S. company sold one of its sophisticated Chinese assembly subsidiaries to business interests in China. Even worse, the U.S. company had to part with its hard-earned technology as part of the sale.

If we keep losing technology to China, particularly military technology, we'll really be at risk if, some day, a militarily aggressive China emerges and threatens the United States.

To maintain and grow their technological capabilities, China is now graduating more science majors than we are. Granted, the Chinese educational institutions cannot, for the most part, compete with our colleges and universities. But, the time may come when they can.

Secretary of State, Condoleezza Rice, recently expressed her concern about this situation when she said:

"... The relationship with China is just big and complicated, and it's got good parts and it's got not so good parts ... But, what we are trying to stay focused on is the understanding that China is going to be influential in international politics one way or another. It's a major power, and it's going to be an even more major power ..." Wow! That sort of says it all.

Shifting the Focus at Home

The solution, as I see it, is for us to improve our educational system so that we, once again, are clear leaders in the sciences. We have to start stressing the sciences when our kids start school and continue that focus right through college.

Also, we must get our economic house in order. We have to stop running budget deficits and have to start repaying our ever-growing national debt. Finally, we must do something about our trade deficit, especially our deficit with China.

The United States has always risen to challenges and prevailed. I have no doubt that we will focus on this challenge and come out on the sunny side of it. Good luck!