China is the best option for US importers according to the feedback received by the US government in regards to proposed tariffs against $200 billion worth of Chinese goods. Based on hearings conducted by the US Trade Representative and public comments, the overwhelming opinion of the import business community is that tariffs on Chinese goods will result in higher prices for US consumers and, potentially, force US companies out of business. Those who provided their input also feel China is their best option when it comes to ensuring the highest quality of outsourced products at the lowest cost. Often called the “word’s factory,” China was able to provide a massive workforce of cheap labor, which has allowed it to buildup an unrivalled industrial base. While the average consumer can testify to the shoddy workmanship of various Chinese-made goods, as well as modern goods in general, Chinese industry has spent years improving its production methods. As such, China is still likely the best option for importers at this time. The need to promote domestic production, therefore, creates a significant challenge.
In recent decades, US businesses and those of other developed countries have become increasingly reliant on foreign-made products and components as they have sought ways to provide consumers with lower-priced goods and blunt rising production costs. The cost of low-cost goods has been the loss of domestic production and jobs. The cost of not “extending supply chains” into lower-cost countries amid ballooning operating costs would likely have meant significantly higher consumer prices that would have prevented average consumers from buying most modern goods. Although trade allows, and has allowed, consumers to benefit from lower-cost goods, while slowing rising prices, the need to create consumption-sustaining jobs, i.e. well-paying jobs, and sustain domestic production, i.e. the capability to ensure the supply of goods amid potential trade disruptions, cannot simply be ignored. Too often they have been, thus a painful correction in global trade and recalibration of trade relations is long overdue.
Relying primarily on China to produce the world’s goods has created a situation where the global economy has become over-reliant on a single source for production. Given the authoritarian nature of the Chinese Communist Party, which asserts significant control over all Chinese businesses, and its increasingly aggressive foreign policy, the reliance on the Chinese monopoly is an untenable situation at best. As the costs of operating in China rise with the China’s economic growth and geopolitics point to unstable trade relations with China, importers had already started to explore other options for the production of their goods. Unfortunately, it takes time to buildup the industrial capacity of nations and cultivate the skill level labor forces need to efficiently produce quality products en mass. Government policy, in contrast, tends to remain stagnant for a very long before rapidly shifting with political trends. Problems arise, because government policies help cultivate the economic environment that businesses evolve to operate in.
Past US trade policies have made it so beneficial to operate within China that US businesses failing to do business in China, or engaging in some level degree of outsourcing, could not survive. Today, the Trump Administration has decided to “flip the switch.” Now, businesses sourcing their products from China cannot adapt quickly enough to ensure their survival. The over-reliance on cheap Chinese goods, which allowed China to develop and hone its industrial practices, both discouraged the development of alternative supply chains and left import businesses addicted to the cheap goods of China. Promoting specialization is a key factor in developing the economies of the world and reaping the benefits of a globalized economy based on trade, but concentrating global production and global consumption at opposite ends of the globe while creating an over-reliance on a limited number of natural resources and goods is a disaster waiting to happen. The world needs a diverse global economy that disperses economic activity around the globe.
The environment of the global economy is analogous to the Earth’s environment. The Earth does not offer a single global environment. The global environment is composed of countless ecosystems that interact on a global level, but primarily function at their local levels based on their local needs, which evolved from locally available resources. World policymakers have attempted to treat the global economy as a single entity that treats the needs and wants of the world’s population as interchangeable. In order to ensure global stability, national and local economies must be rebuilt on industries that serve the local needs of a population with locally plentiful resources that are as local as possible with excess production being used to participate in the global economy. The Trump Administration’s trade policies have shocked the global economy, but there are countless other potential issues that could have easily destabilized a fragile global economy over-reliant on imports and a limited number of raw materials. Albeit far more difficult to deal with, the Trump Administration has more or less accelerated natural trends in the global economy. The fate of Ford’s car production and sales demonstrate that.
Like the catastrophic impact of free-trade accelerated globalization on US manufacturers, importers are now struggling to cope with a sudden change in the dynamics of the world economy. Once the tremors of Trump’s forced trade corrections are fully realized and the global economy adjusts to the new normal, the question of affordability will, of course, remain. In many respects, free trade and outsourcing were stopgap measures adopted to accelerate economic growth through over-consumption and avoid the challenges of rising prices. These stopgap measures came at a price that domestic workers largely absorbed. The global economy also took on the risk of increased fragility, which is a cost finally being realized. At the same time, increased efficiency was substituted for cheap labor and loose regulation in foreign lands. Unable to turn to the lowest bidder at the moment, which is an option that will not be readily available in the future either, businesses need to focus on increased efficiency and innovation while governments need to cultivate economic environments that promote domestic production and foster trade.
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