2010 July 31 Saturday
US Manufacturing Losing To China Industrial Policies

An article in the San Francisco Chronicle features comments from Silicon Valley executives about China's policies that make US manufacturing unable to compete. China's efforts to dominate LED light manufacturing sound like they will be successful.

For five years, he said, China has given its cities billions of dollars to replace public lights, including traffic signals and street lamps, with energy-saving LEDs.

In addition to creating this internal demand, Watkins said China provided up to 80 percent of the capital for companies to set up LED manufacturing plants.

Now that those policies have spawned 55 LED manufacturing firms, Watkins said China is moving into the second phase of industry building, easing off the subsidies while putting a 20 percent tax on incoming LEDs to protect these domestic makers from outside pressure as they compete amongst themselves to become the survivors that light the world.

With large volumes achievable in China the Chinese makers will go up learning curves that will probably allow them to dominate world LED production. Given that LEDs are going to displace incandescent and fluorescent bulbs for lighting this is a substantial win for them. Former Intel CEO Andy Grove says the shift of so many US factories abroad and growth of US competitors mean the US is losing its long term competitive edge.

The policies that other companies pursue to boost their exports, cut our exports, and boost our imports matter to us. The US trade deficit is about 2.7% of GDP right now.

The gap expanded 4.8 percent to $42.3 billion as U.S. companies imported more automobiles and consumer goods, Commerce Department figures showed today in Washington. The deficit was projected to narrow to $39 billion, according to the median forecast in a Bloomberg News survey. Imports and exports rose to the highest level since 2008.

The growth in the trade deficit contributed to a weakening economy. US economic growth slowed to 2.4% and looks to slow further.

The world’s largest economy will probably keep cooling in the third quarter as a lack of jobs prompts American consumers to rein in spending.

The economy in the U.S. grew at a slower-than-forecast 2.4 percent annual rate from April through June after expanding at a 3.7 percent pace in the previous three months, Commerce Department figures showed yesterday.

The Consumer Metrics Institute has metrics that show the US economy headed back into recession. Trade policy matters. That 2.4% growth rate includes a 1.05% inventory restocking. But sales are down. So factories are probably going to stop restocking and that'll lower economic growth further, perhaps back into a recession.

Share |      By Randall Parker at 2010 July 31 08:19 PM  Economics Trade

Wolf-Dog said at August 1, 2010 2:03 AM:

In other words, state sponsored capitalism does work when it is done judiciously. There are certainly industries and technologies that can be evaluated relatively objectively to be a benefit to society (Hey, LED diodes are more beneficial to society than pornography, even though both bring profit to corporations), and these can be sponsored by the government. This is better than throwing money at the unemployed who will simply lose that money to the corporations to buy basic goods and services. The United States is built on the New Deal. It is much better for the government to hire people (and corporations) directly to make people work on productive areas (productive in comparison to paying people not to work by welfare.)

Rohan Swee said at August 1, 2010 8:15 AM:

Yes, trade policy matters, and I'm all for changing the insane beggar-the-nation non-policies we have in place now. But I'm afraid these recent articles by Grove et al provoke nothing but a cynical smirk from me. The disingenuous tone is a bit much - "golly, losing the infrastructure and gutting the broad, deep skill and knowledge base leads to your competitors eating your nation's lunch"? C'mon, lots of people have been saying this for years, and these guys are waaay to smart not to have known how things would develop, even as they were lobbying for the same rules-of-the-game that they're complaining about now.

Maybe they were a bit surprised about how fast China, etc. moved up the value-added chain and started pushing them out? I dunno, but I'm certainly not buying their new stance of economic nationalism and caring about "America's" competitiveness. They want the benefits of being members of a nation-state, but none of the reciprocal duties and obligations. They want Americans to have their back when it helps them against global competitors, but at the same time complete freedom to operate against the best interests of the nation when it's profitable for them. There's nothing new about this, this tension between national interest and business freedom always existed. It's just that in the present age, after decades of Western corporations aggressively pursuing the project of dismantling their own nations in the name of greater "efficiency" and profit, they may find there's no daddy left to run to for protection when the global playground starts getting rough.

California kid said at August 2, 2010 12:43 PM:

How do you know that porn is not beneficial to society ? Porn keeps men who are locked out of the dating game, happy. Women only like Roissy, Roosh, Gmanifesto, et al. The internet tells me so. Porn gives beta males some happiness. It's necessary in a feminist world.

NotProgressive said at August 5, 2010 9:13 PM:

When Clinton OK'd certain provisions of NAFTA, he almost simultaneously signed MFN for China. NAFTA was supposed to be a competitive trading block with Europe and Asia.

NAFTA had a key provision that allowed private bankers access to Mexico. Today almost all banks in Mexico are private, and their owners are foreign money. Periodic peso devaluations and bear raids on Mexico have changed it into a failed state. NAFTA forced Mexican peasants to compete with mechanized, subsidized, American farmers. The objective was to have the displaced Peasants go work in the Maquiladoras. However, instead we have a failed NAFTA system, and a Mexinvasion. NAFTA was short circuited by China, because the Macquiladoras do not compete well. When you buy a good that says "made in china" think about the displaced Mexican and why he has invaded. Mexico was short circuited by financial attacks (bear raids) and then there was the NAFTA knockout punch.

What our greedy private banking elite didn't expect was for China to outsmart them. China uses chartalist money, which means they don't need to back new money creation up with a bond. Our Western banking elite play a game where new money has a bond behind it, and hence all money has some sort of usury attached. An example: You buy a POS Chinese good, and your dollars are transferred to the Chinese manufacturer. The Chinese government presto chango creates new Yuans from nothing, and trades them to the company. The Chinese government now holding your dollars, uses them to buy U.S. bonds. Effectively, they took dollars out of circulation, and propped up the dollar value (reduced supply) relative to the Yuan. They made American's debt slaves. Eventually you won't be able to buy American made goods, like T.V.s, or solar cells, etc. Then you are indeed a debt slave.

The New Deal would have worked if FDR had not BORROWED the money to get the economy going. China is not taking a page from FDR, they are taking it from Lincoln.

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