Our story began in February 1972. Then President Richard Nixon is feted to a full State Visit to the Peoples’ Republic of China. It is the first time in a quarter century that the mysterious Middle Kingdom has welcomed a visitor from America. For those in the United States, it will be the first time to see outstanding Chinese monuments, the Great Wall, the Forbidden City, and the teeming crowds. And it marks a new chapter between the two nations.
For Nixon, it was a personal coup he had spoken of for ten years or more. Nixon recognized that this vast Country, with a population of more than 900 million (in 1972), was a ready market for American Manufacturing. After all, the United States was the workshop of the World, the most powerful industrial Country globally. Being the first to open this great market would mean thousands of new jobs and large profits for American Corporations. Nixon was well aware of economic history. He recognized that the colonial powers in past centuries had grown rich by selling advanced manufactured goods to more primitive countries and colonies.
It’s a strategy of a type of economics called Mercantilism, which created endless wealth and power for those advanced industrial countries. Nixon aimed to make China the American colony of the twentieth century.
Unfortunately, as they say, “the best-laid plans oft go astray.” Nixon’s dream would end just a couple of years later when the scandal of Watergate forced him to resign from the Presidency and ended his vision of dominating the Chinese marketplace.
Nixon was followed by two thoroughly ineffectual Presidents, Gerald R. Ford and Jimmy Carter. Both Ford, who, as Vice President, assumed the Presidency when Nixon resigned, and Carter, who was plagued by escalating oil and gas prices and a stagnant economy (sound familiar?), were consumed with domestic policy issues. Neither effectively grasp the opportunity of exploiting Chinese markets. And so, America was adrift.
Not so for China.
Assuming the leadership of China upon the death of the Country’s founder Mao Zedong was a true visionary, Deng Xiaoping. Underestimated by the West, Deng is considered by most historians to be the “Architect of Modern China.” Deng would move millions of peasants off the farms and into modern Chinese Cities. Deng would be the driving power behind the creation of Chinese Industrial might.
Dent would ultimately turn the tables on Nixon’s vision. China would not become America’s colony. Instead, America would nearly become China’s colony.
Upon assuming leadership in the mid-70s, Deng started right to work. His task was monumental, creating a world-class manufacturing core from which China could exploit offshore markets. Deng had reversed Nixon’s vision.
Of course, there were issues initially; Chinese quality production was not up to standard. Delivery schedules were often missed, but China persevered, and in a relatively short few years, China’s production had caught up with the rest of the World.
From the beginning, Deng understood how price sensitive the Western Markets, especially the Americans, are. He only needed to look at Walmart to understand that “low price sells.” So, China would hit the Americans where they lived with “bargains.” China set out to be the lowest-priced provider in the market, and they exceeded even their wildest expectations.
The elites in America missed what was happening entirely. American political leaders and academics started to praise these low-price goods coming out of China. There was no doubt that l bargain-basement Chinese goods were helping raise the standard of living for the average American. You may remember prominent economists extolling China’s strategy of “exporting deflation.” The Federal Reserve was utterly flummoxed. They could not understand why inflation was so low. The Fed immediately set an inflation goal of 2% and began all those stimulus programs: Quantitative Easing, Zero Interest Rate Policy, etc.
However, the issue was not exclusively a monetary one, as the Federal Reserve mistakenly believed. In reality, the cagey Chinese under Deng Xiaoping had begun the largest, most aggressive predatory pricing scheme the World had ever seen.
Deng recognized that American Industry had much higher fixed costs. American labor was the highest paid in the World, new environmental regulations added high costs to manufacturing in the US, and safety standards required careful supervision and special equipment.
China would have none of that. Employment benefits, safety requirements, and especially environmental considerations would all be eliminated. From the beginning, China’s industrial cost structure would be far below the American’s.
Unscrupulous managers would push costs even lower by utilizing programs resembling the “indentured servitude” that the West last saw in the sixteenth and seventeenth centuries. These are Chinese workers who exist on barest subsistence.
Finally, the Chinese Central Authority would provide direct financial support so that selected industries could lower their prices.
The Chinese had created a system as far from “Free Market Capitalism” as possible. It was just the opposite, a very tightly controlled economy. China saw the weakness in the American system, it was our unnatural desire for the lowest price, and China had built its entire economy to exploit that American desire for the cheapest product.
The Chinese success has been spectacular. China first conquered American heavy industry. Smoke Stack America dissipated almost overnight. There was practically no support for American Heavy Industry other than those who worked in the factories. And unfortunately, many Americans actively opposed these so-called pollution makers. Much of the “Environmental Movement” aimed to put the heavy industry out of business. So when the Chinese came in with a lower-cost alternative, many in this Country thought that was a good thing. Chinese workers would now produce Steel, Aluminum, and other metals and materials in Chinese factories.
The greatest surprise in this takeover by Chinese industry has been the actions of the US Multinationals. Simply put, the Chinese have taken over the American West Cost manufacturing. American businesspeople quickly recognized that China had an insurmountable cost advantage. Virtually no American manufacturer could match the Chinese prices. Americans were out-bid for every deal. And so, in the spirit of “if you can’t beat them, join ’em.” That’s just what the Americans began to do—beginning when Phil Night, the founder of Nike, moved the company’s production of shoes and sportswear across the Pacific. Steve Jobs at Apple Computer almost immediately followed him. And this began the stampede. Today, nearly every major US Technology company, especially those on the West Coast, has moved at least part of its production to China.
Today, America’s number one industry, Big Tech, produces most of its products in China and other Asian nations. In addition to sending billions of dollars in revenue, this allows China and other nations to obtain leading-edge US-developed technology—a double loss for the Americans.
It’s been 51 years since Richard Nixon set out to “open up” China to create a nearly limitless market for American goods and products. His goal was to strengthen US Industry and employ more Americans.
However, while Nixon worked within the American four-year political cycle, Deng Xiaoping had a much longer vision across the Pacific. Like the Chinese leaders of the past, Deng planned for a world half a century from his. Today we live in that World. A world in which America is no longer the global industry leader. Today, the American consumer sends billions of their hard-earned cash overseas to employ people we do not know in factories we do not own.
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Epilogue
It’s been 51 years since President Nixon first visited China. During that time, China experienced the most extraordinary economic growth in the World. There is no denying that much of this growth has been because of methods we consider unethical, if not immoral, exploitation of their workers, bribing political leaders in other countries, and excessive pollution. And yet there is no denying that their ability to develop long-range economic goals and objectives has significantly influenced their success. It has also been one of America’s chief failings. Nixon’s dream lasted a mere 2 ½ years before he was forced out of office.