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A Foxconn plant in China; The company, like other manufacturers in China, is being dragged on to a wage superhighway in which manual labourers are enjoying inflation-busting pay increases of 20 per cent a year. (BOBBY YIP/Bobby Yip/Reuters)
A Foxconn plant in China; The company, like other manufacturers in China, is being dragged on to a wage superhighway in which manual labourers are enjoying inflation-busting pay increases of 20 per cent a year. (BOBBY YIP/Bobby Yip/Reuters)

Carl Moritshed

Why the U.S. can't win a trade war with China Add to ...

In a pathetic display of bravura, the U.S. Congress has armed itself for war with China. Hordes of angry U.S. citizens shall flock to California's ports with the aim of scuppering cargoes of cheap Chinese shirts and flat-screen televisions. Advance scouts of minutemen will hunt down unpatriotic Americans using Chinese electronics. Forget the Tea Party, it's the TV party, the iPad party.

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These Congressmen are wasting their time, fussing about trade sanctions against China for its alleged currency manipulation - the undervalued yuan which favours Chinese exporters. While they threatened retaliation, they failed to notice that China is rapidly moving on.



On Friday, Foxconn, a Taiwanese manufacturer which makes electronic stuff for Apple and Dell, said it would raise wages for its mainland assembly line workers by 66 per cent, the second pay rise since June when Foxconn workers gained a 30 per cent wage increase. The Taiwanese contract manfuacturer is not a philanthropic institution; it took 11 suicides at its Shenzhen plant to embarass the firm into action. But Foxconn is being dragged on to a wage superhighway in which Chinese manual labourers in big cities are enjoying inflation-busting pay increases of 20 per cent a year.



Washington's politicians might say: about time, too. Pile on the pressure and force Beijing to let the yuan soar and stop the cheap imports. How is this going to benefit Americans? Do the Congressmen really believe that Apple is poised to hire 10,000 high-school dropouts in Ohio to assemble laptops if the Chinese currency gains 10 per cent against the dollar? Cheap Chinese goods have helped Americans to enjoy an affluent lifestyle for two decades. If $10 jeans disappear, who wins?



Three years ago I visited a Chinese mainland contract manfacturer, a rival to Foxconn, on its vast campus near Shanghai. Even then, wage inflation was soaring and a third of the staff jumped ship every year for better jobs. These firms recruit their youthful work force from towns and villages in the impoverished western provinces and it is clear that the assembly lines will simply move close to the source of cheap labour as the government builds more roads and railways.



Meanwhile, Chinese consumption rates will expand. Wages are only 43 per cent of the Chinese economy, half of the U.S. rate, and the Chinese worker's appetite for better clothes and household goods will drive a bigger domestic economy as exports diminish in relative importance. The adjustment is happening. Really cheap manufacturing is already shifting to Indonesia and Vietnam. The question for America is not the influx of cheap but what do we do when cheap is gone and China starts to make the expensive stuff, too.

 

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