Wednesday, June 22, 2011

We already give them free room, free meals and cake on their birthdays, but they want more

Interesting story in the WSJ about how inflationary pressure in the Chinese economy is going to make that trip to Walmart more costly.   US Faces Costlier Chinese Imports
"...For more than a decade starting in the early 1990s, U.S. inflation declined as low-wage workers in China and other developing nations joined the global economy and produced a tide of cheap goods that washed onto U.S. shores.

The trend made American consumers feel better off and, by restraining the upward crawl of consumer prices, helped enable the Federal Reserve to fuel the U.S. economy with low interest rates.   That epoch appears to be over. Prices of imported goods are climbing..

Though the pressures eased a bit in recent weeks as commodity prices retreated, they show signs of becoming a nagging presence as Chinese workers and others in emerging markets win higher wages and also become eager domestic consumers.
Demonstrating again why it is the Law of supply and demand and not just a theory. This is all a natural effect of globalization. Chinese wages and standard of living are rising while the opposite is true in the USA. Left long enough alone to free market forces, everything will meet somewhere near the middle.

While that is making Chinese imported goods more expensive for Americans, I don't think that is necessarily bad for the USA. It will reduce our trade deficit and bring some jobs back home as profits diminish from exploiting cheaper factory wages offshore. As for the loss in American living standard due to the higher prices at Walmart, is that worth fretting over? I don't think so.

Much of what we will allegedly be losing is just waste anyway. The flood of Chinese imports made things so cheap it enabled people to overconsume, buy stuff they didn't need, throw stuff out and replace it with newer stuff, fill up their houses and garages with stuff, buy every gadget and toy known to man and occasionally stack up piles of it at the curb on garbage day to make room for some more new crap. For those old enough, think of how much more consumption Americans have become accustomed to in recent decades as compared to the 1970's.

The most recent American boom economy in the 90's was partially enabled by widely distributed cheap imported products that replaced all sorts of costlier American products and this gave consumers more purchasing power and a temporary higher standard of living. It was like a free ride down the hill for Americans who started the game on top and glided down by grabbing up the cheap imports unconcerned with how the shift to imports was eroding the industrial base. We didn't notice how our real wages were falling because costs for the stuff we had to buy were falling even faster. Now we're approaching the level part of the track and its time to start pedaling again.

I think the rising wages in China and the leveling of the playing field will be good for all of us. In China, it will lead to more freedom and liberty and democratic reforms. Here it will lead to a simpler, greener lifestyle, a stronger manufacturing and industrial base, a smaller trade deficit and less crap in the landfills. If the Consumers Price Index goes up because of rising prices of Chinese imports, I don't think thats all bad by any stretch. And certainly no one should be surprised it's all happening.

My favorite quote in the story is from a manager at a Chinese apparel factory, bemoaning how labor costs have doubled in the last four years as the workforce in China commands higher wages. This sums up the entire situation which is why I chose it for the title of the post.
"We already give them free room, free meals and cake on their birthdays, but they want more," he said. He has to raise salaries because he is struggling to keep workers amid an emerging labor shortage in China's factories.
Wait till the American workforce finds out that Chinese workers get cake on their birthdays.  Oh boy, talk about needing to level the playing field...

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