Donald Trump and Kamala Harris are both promising to preside over a manufacturing renaissance and whoever wins will have the wind at their back.
A lot of new factories are already under construction in the United States thanks in part to subsidies provided by the Chips and Science Act, the Inflation Reduction Act and the Bipartisan Infrastructure Law. With continued focus from Washington, the country could see ground broken on still more new factories.
But don’t underestimate the threat China poses to the rejuvenation of American industry. China has a lot of industrial overcapacity and its government is investing in additional overcapacity. That will put pressure on prices of a wide variety of manufactured goods, making it more difficult for new factories outside China to make profits.
China denies it has overcapacity. The Chinese say foreigners who use that word are trying to thwart China’s rise by suggesting there should be limits on how much it can produce and export.
But China already dominates world manufacturing. It produces 35% of the world’s factory output. That’s more than the combined shares of the next nine largest manufacturing countries and nearly six times the 12% share of the number two producer, the US.
Economist Richard Baldwin calls China “the world’s sole manufacturing superpower.”
Foreign economists say China’s obsession with manufacturing has left its economy dangerously unbalanced, heavily overreliant on investment at the expense of consumption. They say this underlies the country’s slowing growth, rising unemployment and real-estate debt problems.
China’s leaders reject that analysis. They’re doubling down on investment in manufacturing and planning to export what the domestic market can’t absorb. They’re pushing to move upstream and trying to dominate the high-tech industries of the future.
“China’s excessive investments will not be a small wave, but rather a US$450 billion tsunami over the next three years,” says Harry Moser, president of the Reshoring Initiative, a non-profit dedicated to bringing manufacturing jobs back to the US.
According to the Wall Street Journal, the Chinese government’s support for its manufacturers was in a league of its own even before the recent doubling down. In 2019, China spent 1.7% of its GDP on industrial policy. The US spent 0.4%.
And China’s 1.7% doesn’t take into account a variety of indirect subsidies – cheap loans from state-owned banks, tax breaks of various kinds, cheap steel from state-owned steel companies and cheap energy from state-owned utilities. One estimate cited by the Journal puts China’s actual industrial-policy spending close to 5% of national income.
And China’s spending isn’t just deep, it’s broad. “Ninety-nine percent of publicly listed companies report some kind of subsidy,” the Journal reports.
The doubling down is as much about power as economics. China wants to become less reliant on other countries. It wants them to be more reliant on China.
Other countries, especially the US, don’t want to be more reliant on China. They fear further unemployment and deindustrialization, but that’s not their only worry.
The Russian invasion of Ukraine and Israel’s war with Hamas have reminded Washington that a strong industrial base is critical to national defense. Covid taught the US that it’s unwise to rely on other countries for critical supplies in a crisis.
Government policymakers in the US, Europe and elsewhere are struggling to come up with solutions to this China problem. The last two US administrations have tried tariffs and subsidies to varying degrees and with varying degrees of success.
Trump is promising even higher tariffs and threatening companies such as John Deere that are moving manufacturing offshore. Harris says she’ll give tax credits to encourage investments in new factories. How serious these efforts would be is unclear.
Anyway, these are tactics. As I’ve argued previously, what the country needs is a strategy. Let’s convene a bipartisan commission of experts to study the problem and recommend a way forward.
Rather than continue with the ready-fire-aim approach both parties have been taking, we need first to agree on answers to some key questions.
How much manufacturing does the country need to avoid overreliance on China? How much new manufacturing can be developed without government support? Which industries deserve support? Which are the best of many possible ways to give that support?
Yet another important question for this commission would be whether to work with other countries in reducing reliance on China or to go it alone. I’ll discuss that question in my next post.
A foundation has been laid for this commission: Both parties agree there’s a problem. It’s worth trying to see if they can agree on solutions. The potential dangers of China Shock 2 are serious enough that a united national effort is imperative. Let’s give bipartisanship a chance.
Former longtime Wall Street Journal Asia correspondent and editor Urban Lehner is editor emeritus of DTN/The Progressive Farmer.
This article, originally published on October 2 by the latter news organization and now republished by Asia Times with permission, is © Copyright 2024 DTN/The Progressive Farmer. All rights reserved. Follow Urban Lehner on X @urbanize
China needs a solution to US problem
China is now the world’s sole manufacturing superpower. Its production exceeds that of the nine next largest manufacturers combined. The US is the world’s sole military superpower. It spends more on its military than the ten next highest spending countries combined.
This means that China has spent the last four decades building the means of production, while the US has spent those decades creating the means of destruction.
China is a manufacturing juggernaut crushing all before it. The only way the United States and Europe can compete is by erecting tariff walls. But here’s the rub, it only works within their jurisdiction, China wins the market in the rest of the world. This is a problem for Europe especially, which is short of raw materials and must export to pay for imports.
If they go over to producing stuff protected by tariffs, the distribution of national income will have to change. Workers will have to be paid more and there will be a concomitant reduction in the number of rich people. The wealthy will attempt to maintain their position by importing cheap labour, like they have already been doing by encouraging irregular migration, but that can only exacerbate the political problem, the popular resentment is obvious.
Some European countries have read the economic tea leaves and are now proposing to go to war with Russia within three years, to gain the fuel and raw materials they need. I think I have seen this movie before.
china is NOT a poblem, china is an opportunity – if theres a problem, its the US itself with its collapsing society-economy-finance-politics-education-infrastructure-healthcare-etc etc, crime rates etc etc … blaming, demonising china aint gonna MAGA one bit, insted, it will have the exact opposite effects …
I like your comment. Well said.
Simply put, the US does not have enough skilled workers, and the prospects are dim for building a skilled work force.