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 Date:7/11/2007 Wake Up Call |
| The Ticking China Bomb Think its just food? Think again. Many critical products could fall prey to Chinas erratic production system, as Alan Tonelson asserts in his debut column  Mounting consumer fears and official outrage about dangerous Chinese ingredients in American food and drug product markets have clearly thrown multinational manufacturers for a loop.Are American producers of capital goods and high tech products next? In particular, is the recall of 450,000 defective Chinese-made tires ordered by Washington last week the first sign of a full-blown China-gate scandal over more advanced manufactures? So far, the portents are mixed. But like the food and drug mess, the tire recall is a timely reminder of the costs and risks to the United States and the world of policies that have suddenly and indiscriminately opened global markets to China. American leaders are finally starting to recognize how domestic businesses especially manufacturers and workers, are threatened by predatory Chinese competition. Some now even understand how U.S. national security is threatened by massive transfers of cutting-edge militarily relevant technology to this emerging, secretive giant. Now Americans are seeing that their economy depends heavily on products from a country lacking any foundation stones of a culture of consumer safety. And the situation wont change significantly any time soon, whether the problem is general regulatory backwardness, a corrupt legal system, a lack of strong, independent restraints on state and corporate power, or the sheer magnitude of monitoring a vast, dynamic industrial complex. Of course, Americans could wind up shrugging off todays China product horror stories. They certainly have in the past. After all, Americans keep buying Chinese-made consumer electronic products whose extension cords overheat and spark and whose batteries explode and ignite, Chinese-made toys loaded with lead, Chinese-made batteries and pajamas that burn, Chinese-made infant seats that fall apart, and on and on. In 2000, a defective Chinese-made part was even implicated in the crash of an Alaska Airlines jet. Nor do the revelations of the last few weeks represent the first Chinese food scare to hit the Unite States. Nonetheless, China-related fears could easily one day undermine consumer confidence in Americas core manufacturing sectors. For one big new wrinkle supercharging todays food and drug alarms is increasingly present in capital-intensive and high tech U.S. industries surging usage of Chinese intermediate and other producer goods. Most Americans (including a depressing number of policymakers) still mistakenly dismiss U.S. imports of Chinese goods as consisting overwhelmingly of labor-intensive garments or trinkets. Imagine consumer reactions to learning that Chinese-made parts and components make up more and more of their automobiles, aircraft, communications networks, infrastructure systems, heavy appliances, and factories themselves in the form of industrial machinery of all types. And imagine the shock value of finding out about multinationals plans to boost levels of Chinese content much higher. Chinas presence in core manufacturing remains small but the growth rates are stunning. For example, original research by the U.S. Business and Industry Council shows that, in 1997 (the first year that Washingtons new North American Industry Classification System for slicing and dicing the economy came into use), tires made in China represented just under one percent of the U.S. market. By 2005 (the latest year for which such figures can be calculated), that level had jumped ten-fold. Chinese-made braking systems increased their share of U.S. consumption from 0.7 percent to 3.26 percent during this period. The Chinese presence in aircraft parts is still infinitesimal. But 3.61 percent of all ball bearings sold in America in 2005 were Chinese made, up from 2.21 percent in 1997. For metal-cutting machine tools, the figures were 1.29 percent to 3.61 percent, for a catch-all category of electronic components, 8.62 percent to 24.93 percent, and the same trends can be seen in literally dozens of other sectors. Multinational companies, moreover, insist that we aint seen nothin yet. In 2002, GE chief Jeffrey Immelt announced that the huge conglomerate would be sourcing $5 billion from China by 2005. Two years ago, Boeing unveiled its intention to procure $750 million worth of Chinese parts through 2010, and Airbus, which sells robustly to the U.S. market, will soon be assembling jetliners in China and is increasing parts procurement in the PRC as well Late last year, Ford revealed that the companys procurement of Chinese parts would nearly double from 2005's level of $1.6-$1.7 billion, and GM has announced similar plans. Business leaders often point out (correctly) that products Made in the USA are hardly free of defects or dangers. They also observe (correctly) that products made in most foreign-owned or affiliated Chinese factories are held to the same standards as goods made anywhere else by these companies, including the United States. Any other approach, they contend, would jeopardize the integrity of their brands. A cynic would add (also correctly) that multinational companies in core manufacturing sectors are often protected by their concentration in intermediate goods production. Because individuals consume such products only indirectly, they rarely think about country of origin, and if they did, Washington mandates little, if any, disclosure. At the same time, so much can go wrong with the comforting picture of manufacturing in China drawn by offshoring companies. For example, the relentless commoditization of even sophisticated manufactures puts the spotlight on cost cutting and thus raises the pressure to farm out work to largely anonymous Chinese or other Asian subcontractors with no brand vulnerability and to look the other way at low quality. Meanwhile, weak intellectual property protection and the scale of supply chains, plus continuing pressure from the Chinese government to share technology with Chinese partners, greatly multiply the chances of using knock-offs. As with the food and drug scare, given the enormous inroads made in our economy by products from China (and other regulation-light countries), the best and most practical American response would be detailed labeling requirements. These would enable consumers to know exactly what they are buying, and to decide how much bargains from problem countries are really worth. Such a genuinely free market approach, relying on information and the pricing mechanism, would also enable producers to adjust most efficiently to evolving consumer tastes and behavior. Some companies, Tyson Foods and Colgate-Palmolive, are already publicizing some China sourcing information and changes in their own procurement policies to allay consumer fears. But truly comprehensive data is needed, not selective disclosures and for every product sold in the United States Indeed, this could and should be the most far-reaching and welcome consequence of the current Chinese food and drug scares. They could generate the political will to force open corporate books and at long last reveal to Americans exactly how much and what kind of production and jobs have been sent to China and other foreign countries. With the multinationals' monopoly on offshoring information broken, the nation could finally weigh the pluses and minuses of Washington's China and globalization policies with precision and intelligence. Alan Tonelson is a Research Fellow at the U.S. Business and Industry Council Educational Foundation in Washington, D.C. A contributor to the Councils AmericanEconomicAlert.org website, he is also a consultant to CNN anchor Lou Dobbs and the author of The Race to the Bottom (Westview Press, 2002). |
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