The braying mob wanting Donald Trump’s scalp has added another sin to his charge sheet. That is, he allegedly wants to “decouple” the U.S. economy from the People’s Republic of China (PRC).
He of course does not, and it won’t happen anyway – at least in the sense the two economies split and operate in hostile isolation from each other.
But, as is often the case, Mr. Trump’s instincts are correct – even if his explanations are “in-artful.”
Pathological Dependence On China?
So maybe a little decoupling isn’t a bad thing. After 40 years building up a near pathological dependence on China, perhaps U.S. industry will consider pulling back from the PRC – even if it is not a total decoupling.
Some companies already are – thanks to President Trump’s tariffs and belated recognition the China market isn’t what it seemed.
How did this over-dependence happen? First there was the dream – never requited – of selling one of something to every person in China. Or it was the allure of cheap labor. Move manufacturing to China, bump up revenues and share price – and there’s a nice bonus awaiting. “Score” just once and you’re set for life. Or, take the easy route: sell the entire company to a Chinese buyer and top executives make off with a bundle.
In other words, among much of the managerial class an unspoken get-rich-quick, “I got mine” or “Après moi le deluge” approach to China took hold – especially since long-term prospects were, well, “long-term.”
Disrupting global supply chains?
Ask why “decoupling” from the PRC is a bad idea and the reply is often:
“It will disrupt global supply chains.”
It is as if Moses chiseled Apple’s i-Phone supply chains in stone atop Mt. Sinai – right after the Ten Commandants.
Yet, supply chains change frequently and presumably have for most of recorded history. And they change for many reasons, not always owing to cold “business” calculations. Politics, inter-state frictions, invasions, wars, and even the nature of a regime matter just as much.
Notably, and in recent times, American businesses have decoupled from many places – including from the United States.
America’s CEOs and business elites had no problem “decoupling” the U.S. textile industry in the 1980’s and sending it to China. And they decoupled at least a few million manufacturing workers in other industries from their jobs — and their lives.
Indeed, they didn’t bat an eye.
And now American business complains about the difficulty of decoupling from China. Good grief.
Of course, there will be disruption and it will take some effort to alter supply chains. But one gets the impression reluctance owes to laziness as much as anything.
And if the “supply chain” whining isn’t enough, there is the grim warning:
“Products will cost more.”
Different figures are bandied about, but a ballpark figure seems to be an extra $600, maybe a $1000, per family per year from a retreat from the PRC.
That’s a lot for somebody without a job – but not for somebody with one. And employed people have more money to buy other things as well.
But ask Chas Freeman, a former U.S. Diplomat and “China Hand” or Stephen Roach, once Morgan Stanley’s Asia head and now with Yale University, and it’s all the fault of American workers.
You see, these American “deplorables” don’t save enough money.
That’s true. But when you’re making $10 an hour at Wal-Mart or getting a government disability check owing to despondency or drug addiction after long-term unemployment – instead of $40 an hour at a factory (with benefits) one is unable to stuff a hundred thousand into the 401k every year.
“Maximizing shareholder value” – one sweet excuse.
The mantra that management’s sole duty is to “maximize shareholder value” also provided excellent cover for the great decoupling” to China of the last four decades.
Yet, “maximize shareholder value” is essentially a theory that took on a life of its own – serving more as a convenient excuse so CEO’s and CFO’s can better look after their own interests.
One only has to find a country where somebody will work for next to nothing (compared to Americans) and you can make a killing.
As for the effects on your own workers and local communities in the United States?
“Can’t be helped. Shareholder value, you know.”
What’s the alternative? Richard Branson has done rather well by putting employees first, which makes for happy customers – and the shareholder bit tends to then take care of itself. Not exactly complicated.
Nothing to do with business
The “decoupling” opponents might also recall some recent history.
As noted, decoupling often has nothing to do with commercial or financial reasons. Apartheid-era South Africa was Africa’s most stable and prosperous market and also a vital source of strategic minerals.
Yet, boycotts and sanctions by foreign governments and private groups against racial injustice forced a “decoupling” by major multinationals.
And these days, the so-called BDS (“boycott, divestment, sanctions”) movement against Israel is trying to decouple Israel, the only real democracy in the Middle East.
So, if decoupling – either partial or complete – is sometimes a matter of principle – assuming one has principles in the first place – the PRC is a prime candidate:
Concentration camps, organ harvesting, dynamiting churches, black prisons, seizing international seas, threatening neighbors with violence – might give a few CEO’s reason to reconsider their China investments.
And this is beyond the obvious business risks: lack of a predictable, honest legal system, IP (intellectual property) theft or strong-arming as the price of admission, counterfeiting, and discriminatory treatment. There is also a host government intent to put foreign companies out of business and replace them with local competitors.
And you’re in trouble if the CCP is unhappy with Washington’s policies – or an employee somewhere “likes” Taiwan on Facebook – and offends all 1.4 billion Chinese.
Even worse, China is not just America’s business rival. It’s a military one as well. And even CEO’s can’t forever decouple business from patriotism – as the public and government will remind them.
So, while a full decoupling of the sort Mr. Trump’s critics warn may not happen, things will never be the same for American companies and the Chinese market. And, it took a real estate man from Queens to make that happen.