China

That's an interesting subject, isn't it? Just about every consumer item we wear or use, be it TV, shoes, clothing, or parts of all sorts, are made in China. We have a huge trade deficit with China. So why have all the jobs gone to China? Perhaps a better question might be, why is everything so expensive here, and wages so cheap in China? Both are excellent questions, and as usual, the ultimate reason is the D.C. Gang. Let's examine the details.

No question about it, wages to make things here are so high, that products are being made in China, usually by the same companies, with the same brand names. This fools a lot of people. I just bought a new pair of Merrell shoes, which I love. Made in China. Typical.

WAGES in CHINA

The average wage in China is 64 cents per hour. In rural areas it is 45 cents an hour and in cities it is $1.06, but it all averages out to 64 cents per hour. Cheap labor? Yes and no, depending on the cost of living. (We are dealing in US dollars for this column). As an example, the 64 cents per hour wage, has no deductions taken from it. No income taxes, Social Security, Medicare, Medicaid, unemployment, union dues, etc. There are income taxes, but not on incomes as low as 64 cents per hour. Wages then are still very low, but perhaps not quite as low as 64 cents an hour average, since there are no deductions.

The average wage in China for a teacher, is about $250 US dollars per month. For that wage, the teacher can live quite high on the hog, eating out at least two meals a day, having a few drinks with dinner, and participate in a few sports, travel and recreation. Not bad, huh?

Many workers live rent free in government owned apartments, making the cost of living ever so much lower.

Taxes in China

First of all, there is no gasoline tax. No tax on interest, capital gains, income, or pensions. There are high taxes on foreign businesses. 33%, as a matter of fact. So an American company re-locating to China will get by with low prices for wages, but have to pay a 33% tax on its profits. The cost of a U.S. gallon of gas in China is $1.48, and a Big Mac is $1.26, with no taxes added.

In 1985, there was no trade imbalance with China. It has all come about in the past eleven years, and is increasing every year. Another wage comparison made by "China in Transition," points out that while China's wages are but a 2.1 on a U.S. scale of 100, China workers, on a U.S. scale of 100, only have a 2.7 in labor productivity. They work long hours and maybe even work hard, but the Chinese have yet to streamline their productivity and make it efficient. Further, Chinese productivity is so sloppy that it is good for shoes, mops, clothing, and the like, but in no way can it make precision parts for even autos. Auto makers have in part switched back to the US for good quality parts. As far as the wage and productivity scales are concerned, these figures are interesting. Mexico's wages are 16.3 on the scale of 100, but its labor productivity is 42.5, as opposed to China's 2.7. Japan's wages are 62.6 and productivity 67.8, making Mexico by far the best place to make things, as opposed to China. I wonder if more manufacturing will come back to Mexico after having left for China? Mexican's efficiency comes from the fact that they have copied us for decades. Japan far outweighs China in the ability to make precision parts and machinery, as witness the Japanese cars and trucks, which flood American roads.

China has an enormous surplus of labor in its rural areas, so the temptation for Chinese corporations is to continue making labor intensive products rather than high tech or precision goods. TV sets and DVD-VCR players are not considered high tech, so they flood American markets with 'made in China' labels, whereas the HDTV things are very high tech, and usually come from Japan. China's low tech, labor intensive output, is heavily dependent on U.S. names. Fashion names such as Ralph Loren, Merrell, Van Husen, Arrow, and others, sell well being made in China, but if China had its own brand names, it is doubtful that they would be successful, since Americans like their own names, and would probably refuse to buy a Chinese branded shirt or shoe, as opposed to willingly buying Japanese and Korean cars and trucks. China's success is dependent on American names.

What are the prospects for China's continuing to drive American workers crazy? Will China continue to go up 10% a year, while less developed nations are virtually stalled? One possibility is that China has and is building so fast, that if a decline in the world's economies, and especially America's happens, and buying lessens radically, Chinese factories may lie empty like America's. Already the Apple Ipod sales are slowing. The Ipod, which is probably made in China (I don't have one, so I don't know), probably has hundreds of Chinese making them, and if sales slump, a lot of workers may get laid off. The same scenario could apply to dish towels, mops, and light bulbs if the economy slows, which I think it has already.

Chinese labor also might just get a bit sick of low wages, even though they are not nearly as low as they seem to be because of no deductions and taxes. The bright shiny things they make for us, must look awfully enticing to the shoddily clad worker and his 64 cents an hour wage. Will Chinese workers do what American workers did 50 years ago, and strike or negotiate for 8 hour days and minimum wages? Could be. China's rivers and air are filthy, and health care is equally poor. Could rampant disease wipe out millions of Chinese? The long hard days, lack of health care, and breathing in filthy air, could precipitate worker strikes or sickness. No one knows.

It has been said that if Chinese were lined up seven abreast and walked off a cliff, they could walk forever, there are so many of them. There are millions of rural Chinese living in abject poverty, consuming polluted water, and having a short life span. As they are elevated into the cities and having their living standards raised, the farms which produce Chinese food may languish and a food shortage develop, which could be catastrophic. Chinese depend heavily on coal for generating their ever increasing demands for electricity, and the Chinese coal is of an extremely poor quality, causing unbelievably poor air quality, which makes a lot of people sick. Chinese mines kill hundreds every year, their safety is so lax.

China, at one time, had the world's most advanced and sophisticated civilization. The various dynasties had extremely high living standards, and made many inventions which are still copied and used today, and not just fireworks. When the commies took over, the Chinese crashed like a rock rolling down a hill, and are now beginning to rise again. They covet Taiwan, and in my opinion will re-take it without a whimper from America, but we will see.

Back in the U.S. the dollar continues to fall, and workers continue to suffer from their jobs going overseas to India or China. India, where speaking is necessary, because most Indians speak English and can be trained to use an American accent. China, where manufacturing is destroying the American worker's jobs. Why? Because the D.C. Gang has made not only the dollar not worth much, but has tacked on so many taxes which must be deducted from every paycheck, that an American worker must make $20 an hour to be competitive with Chinese labor at 64 cents an hour. In addition, America has turned into a very litigious society, and the cost of insurance against worker injuries and consumer suits is very expensive. A local house mover, who is a friend of mine, has to may over 100% of his payroll just for workman's comp, and he has never had a claim. If his guys make $20 an hour, Tom must pay out over $56 per hour in deductions and insurance, just to hire them.

I have just touched the surface of the Chinese 'problem,' but it is a fact that if a nation doesn't make what it consumes, and doesn't grow what it eats, it is in deep trouble. This past July 4th had a lot of Chinese made American flags show up, and this really outraged me. If a nation abandons real money for colorful pieces of paper with ink on them, and forces the citizenry to use them as 'money,' the end is in sight. It always has been, unless history doesn't repeat itself. While the manipulators and bureaucrats are doing an excellent job of convincing and forcing the populace to accept its fake 'money,' abide by its confiscatory laws, and pay its huge plain and hidden taxes, this cannot long endure. It can't, because it defies all the laws of economics and human nature. Protect yourself.

July 20, 2006

Don Stott has been a precious metals dealer since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com