Fear China?

by Don Boudreaux on March 17, 2011

in Complexity & Emergence, Myths and Fallacies, Technology, The Economy, Trade

Here’s a letter to the Detroit Free Press:

Unnecessary anxiety is stirred up by pundits, such as Mike Thompson, who bemoan China surpassing America in total annual value of manufacturing output (“China is now the world’s biggest manufacturer,” March 17).  This fact, according to Mr. Thompson, is ominous for America, not least because more output by China allegedly causes higher unemployment in the U.S.

Forget that China’s population is four times larger than America’s (meaning that Americans still produce nearly four times more manufacturing output per person than does China).  Instead recognize that most manufacturing job losses today come not from expanding trade with China or any other geopolitical region, but from advances in technology – advances in mechanization, computerization, and chemical processes.

The place to which America is losing manufacturing jobs, therefore, has no geography, although it’s very real.  Call it “Technologia.”  Technologia has a huge and growing capacity to produce and export valuable goods using ever-more skilled and numerous Technologian workers with names such as “Motor,” “Stamper,” “Robot,” “Software-program,” and “Solvent.”  These workers toil with superhuman stamina and discipline, they’re paid nothing, they receive no worker protections, and they never strike.  And Technologia’s workforce is forever learning to do, at consistently falling costs, what some American workers do.

Yet few of us worry about trade with Technologia, whose export agents keep cutting the prices they charge for the many imports we receive from that highly productive region.  With the exception of some Luddites and technophobes, we rightly celebrate our receipt of Technologia’s massive and low-cost outputs and we understand that Technologia’s exports make us richer.  Why, then, do we have a more hostile attitude toward goods and services imported from geographically identified economies such as China?

Sincerely,
Donald J. Boudreaux

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{ 37 comments }

Ike March 17, 2011 at 5:20 pm

Does this mean those displaced auto-workers in Detroit need to storm the factories and start breaking equipment, in order to create jobs?

Or should they wait for a natural disaster to do it for them, so the Keynesians can talk about the timely economic boost?

Don Boudreaux March 17, 2011 at 5:29 pm

Good point. Keynesians would regard either destructive action as serving to increase the economy’s strength.

Methinks1776 March 17, 2011 at 5:48 pm

Ike,

a.) don’t give them any ideas and b.) I’ve long been under the impression that the UAW is a semi-natural disaster.

Ronald Bingham March 17, 2011 at 6:16 pm

Suppose Donald and I were neighbors. Don comes over and likes a trinket that I have. He says, “I like that, will you sell it?” I relieve Don of his anxiety by allowing him to finance the purchase. He comes back the next day and sees another trinket and when I offer the same financing plan, he quickly accepts. Each time he leave, he thinks to himself, “I am always getting richer when I go over to the Bingham home…”

Alas, this continues for the next ten years, and Don finally realizes that he is up to his eyeballs in debt and on the brink of economic disaster. This time it is I who walk over the the Boudreaux estate and offer Don a new deal – I will take his land and house in exchange for his debt burden. Given that financial disaster is the only alternative, Don is forced to accept. As he is sitting homeless, he wonders to himself how his economics calculations could have gone so wrong…

John V March 17, 2011 at 6:29 pm

personal examples don’t work here in this example. The logic doesn’t mesh. The US is not a household.

OTOH, you and I (and Don) freely purchase things all the time from people who don’t buy anything us. Start down that road and you’re on a better track.

Gil March 17, 2011 at 10:16 pm

What’s that supposed to mean? Get the Fed to print up all the money needed to pay China?

John V March 18, 2011 at 12:02 am

No.

Methinks1776 March 17, 2011 at 6:41 pm

Each time he leave, he thinks to himself, “I am always getting richer when I go over to the Bingham home…”

He is. He has more of the stuff you toiled to produce and you have nothing but a bunch of little pieces of paper with “IOU” printed on them. The real question is: if you know Don can’t pay you back, why do you keep giving him stuff on credit, dummy?

vikingvista March 18, 2011 at 12:40 am

Don wouldn’t do that with his own money. He would only do it with someone else’s money. And someone else would only allow Don to do it if Don pointed a gun at him.

Bill March 17, 2011 at 6:16 pm

Good luck with that in Detroit (my home town). You’ll probably have some people screaming to take up arms against Technologia, and yet others trying to unionize it.

E.G. March 17, 2011 at 6:31 pm

Just to play the devil’s advocate for a second (not because I have a problem with the argument, but I may have a problem with the examples used to support it)…

You’re not actually suggesting that the reason Detroit has lost some X% of jobs and productivity in the auto industry, is due to “technology”? Cause thats pretty hard to defend, and with almost certainty not the case.

gregworrel March 17, 2011 at 6:42 pm

Of course Detroit (my home town) has lost jobs due to technology. I worked in Ford and Chrysler plants 35 years ago and they were using automated welders then. I am sure that has only increased many times over. Why would you think anything else?

E.G. March 17, 2011 at 7:27 pm

35 years ago it lost jobs to automated welders. Did automated welders or other automated technology, penetrate other areas of the process, in say, the last 20 years? Are robots assembling cars, for example? The main human input in the production process, is in the assembly of the parts. Thats been the same for the past 35 years.

The loosing competitiveness of GM, Chrysler and Ford over the past decades is a good reason why jobs have gone. The fact that their markets are shifting overseas, is also a good reason they have moved. The fact that Detroit and Michigan are horrible places to do business, also is a good reason why they have left.

Employment in the automotive industry has not decreased (bar the recent downturn). In 1981 it was about 700,000 people, and in 2001 it was about 900,000 people (I don’t have more recent data). Sure there was a significant increase in cars produced too. But this didn’t come from machines replacing humans. That change happened decades ago in manufacturing. The change happened due to machines and processes getting more efficient.

Machines replacing people was the type of model we saw in the industrialization period. Thats not the current model anymore. Detroit can’t be seen in a vacuum, because we know that the main reason Detroit lost jobs was because the business climate of Detroit stinks, and so do GM/Chrysler/Ford.

vidyohs March 17, 2011 at 8:30 pm

EG
There many reasons why Detroit lost its position as the auto manufacturing leader and center of the world; but the main one, the over riding reason is because the leadership of the big three became arrogant on past success, refused to listen to those who were telling them their companies should be taking new directions. Meanwhile the Japanese who were playing catch-up brought those forward looking auto experts and businessmen to Japan to teach them what they knew.

The results speaks for itself.

I guarantee you had the U.S. Big three listened and took the path of progress and change, Japan would still be trying to just get on the field, and the business climate in Detroit would be simply “Mahvelous”!

E.G. March 17, 2011 at 10:07 pm

Sure. I don’t disagree. But, is this a good example of “technology” relieving jobs? I’m not so sure.

John Dewey March 18, 2011 at 5:08 am

E.G.,

The U.S. auto industry has flourished over the past thirty years. Toyota, Honda, Nissan, Hyundai, Kia, BMW, and others have opened factories all over the U.S. Although many parts assembled in those factories are produced in other nations, it is also true that parts suppliers have opened factories in the U.S.

Detroit has not benefitted from the growth in the auto industry for a very simple reason: Michigan is not a right-to-work state.

John Dewey March 18, 2011 at 5:28 am

“Machines replacing people was the type of model we saw in the industrialization period. Thats not the current model anymore.”

E.G.,

I toured the GM assembly plant in Arlington, TX, a few years ago. The tour guide, a union member and assembly line worker, showed us computer controlled machines which installed tires on rims, and then inflated and tested the tires. The guide said that one man per shift operates the tire installation process, but that twenty years earlier 12 men per shift installed the tires.

The GM tour guide showed us the racks and racks of freshly-painted automobile bodies, drying in a four-story dimly lit building. The guide explained that little lighting was needed in the building because humans do not regularly work in it. Where humans had two decades earlier manually manipulated the painted auto bodies, the work is now completed controlled by computers.

Based on what I saw and heard at the GM plant, I would argue that machines and computers replacing people is still the current model.

I can give you many more automation examples in the transportation industry – where I have worked for 26 years – if you would like to read those.

Emil March 18, 2011 at 5:35 am

“The change happened due to machines and processes getting more efficient.”

This IS technology improvement.

Dr. T March 17, 2011 at 6:47 pm

I don’t fear China because of its increased economic clout in and of itself. I fear China because it is an oligarchy comprised of men who likely have longterm plans for global expansion. China has vastly increased the size and capabilities of its navy. Its army is huge for a nation at peace. It has tried to steal oil-producing islands from the Philippines. It still claims that Taiwan is a rogue province that it will reclaim, by force if necessary, any time it feels ready. China recently was caught sending submarines on scouting, sonar mapping, and surveillance missions into Australian harbors. China practically owns the Panama Canal: it has bought lands, docks, warehouses, etc.

China owns huge amounts of US debt instruments. There are many US factories within China. Numerous US businesses have become dependent upon trade with China. Thus, if China becomes expansionist and moves into southeast Asia, the Philippines, Indonesia, Australia, etc., it can use economic clout to convince us not to intervene. China can threaten to dump bonds and treasury notes, confiscate factories owned by US businesses, block the Panama canal, etc. With such threats in place, it is likely that our President and Congress will dither rather than check China’s army and navy.

vidyohs March 17, 2011 at 8:35 pm

I know the Panama Canal still has some significance to troop movement; but tell me how critical it is when we have intercontinental ballistic missles that can hit any target from over half way round the world, planes that can be there dropping bombs within hours, and China knows that having a large army is not the same thing as having an effective army (a fact they learned from watching the Iraqis get rolled in Desert Storm).

vidyohs March 17, 2011 at 8:39 pm

“China recently was caught sending submarines on scouting, sonar mapping, and surveillance missions into Australian harbors.”

Tsk Tsk, They were caught. Seems pretty clumsy to me, considering what I know about our USN’s activities in the past.

John V March 17, 2011 at 6:50 pm

“I fear China because it is an oligarchy comprised of men who likely have longterm plans for global expansion.”

Then you need not worry. Japan had a plan too.

Dr. T March 17, 2011 at 7:18 pm

I’m not supposed to worry because Japan failed seventy years ago? Japan’s failure came about because hundreds of thousands of Americans fought, tens of thousands died, and our nation spent billions on weapons, munitions, and supplies. China today makes the Japan of 70 years ago look like a paper kitten. Do you not know that China has the second largest nuclear weapon arsenal, the second largest navy, and the largest army?

I’m not the only one worrying. Read George Will’s column: http://www.jewishworldreview.com/cols/will031711.php3

John V March 17, 2011 at 7:21 pm

That;s not what I am talking about. I’m talking about how Japan had a master economic plan and was going to overtake the US back in the 80s and has been stagnating since the 90s.

lamp3 March 18, 2011 at 10:30 am

China has the second largest nuclear arsenal? This is factually incorrect.

While you are right that World War 2 came at enormous cost, the trend has been for decreasing casualty rates as history moves forward. With the technology available today, the productivity of our armed forces in destroying is extremely greater than ever before.

Before you perspire too greatly over China, recall the Communists’ desires to expand and the fact that they actually were #1 in terms of numbers of nuclear weapons ready to launch, soldiers, etc.

The United States has spent the better part of a half-century maintaining weapons that can destroy more than all of history’s wars and battles several times over. This still exists. As John V states, all nations face the challenges of competitiveness — this is not unique to America, nor is it unique in time.

John V March 18, 2011 at 11:20 am

The one thing I always wonder about having such large nuclear arsenals is why larger beyond a certain point has any value.

There are only so many missiles that one government could foolishly set off.

It’s like having one match as opposed to a book of matches in a room full of natural gas. The guy with the book of matches is no more dangerous.

DG Lesvic March 17, 2011 at 7:29 pm

I hate to pour cold water on a marvelous essay. But I must take exception to one part of it. You wrote:

“most manufacturing job losses today come not from expanding trade with China or any other geopolitical region, but from advances in technology –”

I’m sure you understand that no net job losses come from either China or technology, but one might infer otherwise from your wording. And I do think it’s essential to keep making the point that neither the Chinese nor domestic technological innovators can keep Americans from working, from better housing, clothing, feeding, and employing one another, that only their own government could do so, and is doing so, and is the only thing that could.

Don Boudreaux March 17, 2011 at 7:36 pm

There has been a net loss of manufacturing jobs.

DG Lesvic March 17, 2011 at 9:56 pm

But no net loss of jobs overall, due to China or technology, but only to “government.” And that’s the ultimate, key point that must not be overlooked.

Sam Grove March 17, 2011 at 11:06 pm

Yes, there would be no complaining of lost jobs if plenty of other jobs appeared to replace them.

Incumbent protection policies stifle the creation of new jobs even when incumbents decline.

Emil March 18, 2011 at 5:39 am

“Yes, there would be no complaining of lost jobs if plenty of other jobs appeared to replace them.”

Wrong, because the people getting those new jobs will often not be the same people that had the old jobs as the skills needed may be different. Therefore you will still have (minority) special interest group whining about the need for “protection” as they will feel entitled to having (atleast) the same things they used to have.

DG Lesvic March 18, 2011 at 6:38 am

Emil,

Everyone who lost one of the old jobs will find a new one. It may be, in individual cases, that the new job will not be as good as the old one, but, for the workers as a whole, they will be better.

Emil March 18, 2011 at 9:38 am

They will still be complaining though (which was the point I was trying to make and where I was in disagreement with you)

Elli D. March 18, 2011 at 6:30 am

Well, who first catch new ideas in technology will be a winner. We can see the importance of modern technological innovations every where around us. An alternative energy sources that can help (not just to) automotive industry to survive can be the right answer for it. Maybe it is the time we should abandon obsolete thinking and change for the new one.

DG Lesvic March 18, 2011 at 6:42 am

The nation as a whole, the economy as a whole, the workforce as a whole, will be winners. Individuals here and there may be left in the wake of progress, but not unemployed. Stone cutting skills are no longer in as much demand as they once were, but the stone cutters didn’t starve, and their descandants are better off than they ever were.

donnettakx polson March 21, 2011 at 12:23 am

Well, for one thing, if “we” had “obliterated” China and Russia, my mother would not have been born because my grandparents would have died.
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Pasta Boat March 25, 2011 at 3:04 am

China’s economy is strong enough to give a tough competition to American economy.

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