A recent column (Economic Viewpoint) in the May 2, 2005 issue of Business Week titled “Stop Scapegoating China – Before It’s Too Late” by Laura D’Andrea Tyson provided some interesting data on the USA – China trade relationship. If you will recall, Ms. Tyson was the National Economic Advisor to President Clinton and the Chairman of the White House Council of Economic Advisors. She is currently dean of London Business School.
The article starts with the statement: “ … China, which sends one-third of its exports to America, accounts for 26% of the U.S. trade gap. Most of its exports to the U.S. are manufactured products, made by workers earning only 4.5% of the average U.S. factory wage. …” The article continues with: “But the fate of U.S. Workers depends primarily on domestic conditions, not the trade gap. A Brookings Institution study … found that trade accounts for only about 12% of the nation’s manufacturing job losses since 2000. Most of the losses stem from weaker exports … The main source of the deficit isn’t China’s … low wages, or export subsidies, but imploding U.S. savings rate – … The U.S. current account deficit – the gap between what America spends and what it produces – recently hit a high because of a sharp drop in personal savings and out-of-control federal spending. “
We also conveniently forget that our prolifgate spending has been financed by “… China, along with Japan and few others, … financing the U.S. current account gap via huge purchases of dollar-demoninated securities at relatively low interest rates.”
These economic relationships between U.S. and China – American’s love of the inexpensive Chinese products – the U.S. is a huge market and one of the few strong economies – bind us in a symbiotic relationship.
What is the answer to the question on how to compete? One answer is to focus on “value added”. What is the primary value your company adds to the product or service? The rest should be open to the most cost effective approach, such as out sourcing, OEM (original equipment manufacturer) relationship, etc.
Save what you can . Be prepared to compete on a global basis.