So for business trips sometimes I have to take jaunts to China. The plane ride is a long 15 hour slog, so it usually does me some good to strike up conversation with the folks in my aisle. The gentlemen next to me was a portly middle aged White man with 2 beautiful children going to private kindergarten/day car and he was going to China to open up a factory making some kind of lighting. I thought it would be a good chance, not in an accusatory way, of listening to what he as a business owner thought of trade with China and why factories like his aren’t being built in the U.S. and rather in places like China and Mexico. In fact, Mexico is the next country where they’ll build their next plant!
The conversation eventually turned to wages. China is a notoriously protectionist country. The Chinese government is about protecting Chinese businesses. Western businesses can go to hell. If a foreigner wants to run a business and get tax credits and government support, then you need to find a trustworthy Chinese person who can run things and put his name on stuff. Yes, Chinese workers sometimes scrimp on quality, and yes, there are a lot of cultural differences where “Yes, we can do that!” means “Oh my god how am I going to get that done on time?” and the thousands of miles of ocean to add to the supply chain. I asked him about all of these disadvantages to operating a factory in China.
“Well, the main point is labor. A Chinese worker only works for like 2,000 RMB a month (approximately $300 USD) and even unskilled workers in the U.S. would cost around $2,000 a month.”
So basically, even with the government interference in the business, even with the risk that your Chinese counterpart might bilk you, even with the lower quality of the product because the workers are paid crap, even with the long supply chain, the vast difference in labor cost made up for all of that in his mind. In fact, his company was already installing robots to automate the entire process to even cut out the $300 per worker. Now that robotic technology will be available in China and Mexico, they’ll develop people who will have skills in repairing the automated factory line, and the factory with all of that equipment will not be here in case we need to rework the factory into something else in case of an emergency. Having available infrastructure and people with real world experience in manufacturing is pretty crucial.
I began to think. The only way to make up for the difference in labor costs is some kind of protectionism or libertarianism. The first strategy is to let the market decide the minimum wage, which will probably be shit, and then Americans would work for less than $300 a month. Prices might drop enough to make $300 stretch, but Americans are not going to go for that. Hell, the Chinese are not going to work for shit wages forever. They have had some demonstrations recently about higher minimum wages. You could do what Germany does and have a really low minimum wage but buttress it with a healthy social safety net, shifting the burden on to the taxpayer for the needs of the worker from the corporation, and then run trade surpluses and get other countries to borrow money to buy your goods.
You also could slap a huge tariff on Chinese goods to make them super expensive or find some way to coerce/persuade your population into paying higher prices for goods even if a cheaper one is available. The latter strategy has worked in Europe (GMO foods) and Japan (home grown rice vs. California rice) but Americans love them some Walmart, so I don’t know how they could be persuaded. Trump’s way (whatever it actually is, who knows) would probably start a trade war and run afoul of the U.S.’s international obligations as far as tariff rates. I also know that historically tariffs raise prices on domestic goods as well which hurts consumers, as well as incentives other countries to slap tariffs on your domestically made goods. Trade helps an economy grow past its natural capacity, and I also think the WTO has rules about slapping tariffs on goods like that.
Another strategy would be a grand trade agreement where you could forcibly raise everyone’s minimum wage so there was no competition. Or, try to pick a friendlier country (like Vietnam) where you could basically say “Okay your cost of living is low enough where low wage manufacturing would be socially palatable and you’re not a Cold War rival, so we’ll make you the go to sweat shop maker of the world.” Then you’d need to get your populace in shape to do jobs in higher end sectors and then have a healthy welfare system.
I think Clinton and Obama have been working on this issue, and I would like to hear more from her about how she is going to take on the very basic reality and how to deal with business owners to incentive them to invest in the U.S.