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Category Archives: Chinese Governement

Once again, Trump has sounded the dog whistle of protectionist trade measures against China, with an Executive Order to find products to tax. It’s very likely that the tariff tax will be on imported technology products starting sometime in the next 60 days. In addition, Trump has asked for restrictions on Direct Foreign Investment by Chinese firms in the U.S.  Once again, it is unclear if the administration has any depth of understanding regarding what this will mean for American industry and American consumers.

Our global supply chains are an interwoven tapestry of parts, worldwide manufacturing, and global markets that cannot be easily unwound on a whim or to please a political base. Over the past 25 years, Americans in particular, have benefitted from inexpensive consumer goods, industrial products, and parts coming from China. China has benefitted too, lifting 120 million people out of poverty into the Chinese middle class and making China the second largest economy in the world.

But now, inciting a trade war seems to be the Trump Administration’s preferred strategy. Unfortunately, Wall Street doesn’t like it, American manufacturers don’t like it, and China has announced it will strike back. We saw this coming as I wrote about in my March 5, 2018 SCMR blog.

China has announced a $3 billion list of U.S. goods for possible retaliation in a tariff dispute with Trump. China released a statement on March 23 that said it is “not afraid of and will not recoil from a trade war. China is capable of facing any challenge and that if a trade war were initiated by the U.S., it would fight to the end to defend its own legitimate interest with all necessary measures.”  On Monday, China said that it will impose a 25 percent tariff on products including U.S. pork and aluminum scrap and 15 percent tariffs on products including sparkling wine, steel pipe, cars and foods including soybeans, grapes, apples, and walnuts.

Trade wars are not straightforward. In fact, China is likely to bite back where it really hurts America – in agricultural products. It is American farmers who will be damaged in return for Trump’s imposed U.S. tariffs on high tech products. The U.S.  proposed tariff list covers 1,300 items, including high-definition video monitors, electromagnets used in MRI machines, aerospace products, and other machinery. We have awakened the Trade War beast.

According to data from Bloomberg, U.S. stocks are on track to have their worst April start since 1929, at the beginning of the Great Depression. Wall Street isn’t pleased. Trump’s signing of the memorandum on the tariff plan triggered a market sell-off and a very rocky March.

And what about all those silk shirts and ties, and dresses and shoes with a Donald Trump or Ivanka Trump label coming from sweat shops in China? They are likely to be excluded from the list of new tariffs.  Should they be included later, the price of these goods will of course, increase for U.S. consumers.

“It is just unbelievable. It will do no good to the United States,” said a vice president of a leading Chinese TV set manufacturer. “The United States lacks a complete industrial supply chain for TV sets,” he said. TVs are not currently manufactured in the U.S., with the exception of some assembly operations for products sold at Walmart. These sets are assembled from imported parts. The impact to U.S. consumers will be significant.

Yep, no good will come of it. At the Reshoring Institute, we support the rebuilding of manufacturing in America through innovation, automation and localization. Trade wars are not a good way forward.

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I met the most remarkable woman by chance at a holiday party.  Mrs. Zhao is a retired professor and researcher from UCLA. She was friendly and sociable and when I asked her what she did, she started to unravel her story for me.  Realizing that I am familiar with Chinese history and culture, she told me more than would normally be expected in polite conversation.

In the 1960s she was a Professor of Physics at Sun Yat-sen University in Guangdong, China. This was during the Cultural Revolution when Mao Zedong shut down all the universities because they were considered elitist and not revolutionary. When her university was closed, she was sent to a farm to be educated in the ways of working farmers. She plowed fields for three years as she was being “re-educated.” All day long the workers had to shout “long live Chairman Mao” as they plowed.  At night she taught the farmers to read and write.

During these years she never protested or complained, because to do so meant sure retribution including being denied meals, beatings and the infamous “struggle sessions” where people were forced to confess their “crimes” against the revolution. This was a difficult time in China, particularly for the well educated people and those in traditional arts. These people were viewed as proponents of the “old ways” and counterrevolutionaries. She told me that her colleagues were beaten and starved for disagreeing with the communist party bosses.  Many people died in prison or from beatings after struggle sessions, if they did not confess.

When the University reopened, farmers were sent there together with the previous students. No matter their educational level or experience, everyone sat in classrooms together to learn from Mao’s Little Red Book.  No other books were available for any subject because the books had all been burned by the Red Guard.

In 1982, a former colleague invited her to come to America to continue her research in microwave physics. She came to UCLA, where she continued her research and teaching for 25 years.

I know other people who lived through the Cultural Revolution and they will say that the period of struggle and change was worth it for China to emerge as the power house it is today.  They will say that Mao was 70% right and 30% wrong, and that he brought China through a metamorphosis and into its industrial age.  But Mrs. Zhao’s story and the way she told it to me touched a very emotional chord.

While China came out of the Great Famine and Cultural Revolution stronger, the effects are still apparent today. People in China are reluctant to talk about the government and its policies. China’s education system is rigid and structured around a fixed curriculum.  Students are not taught or encouraged to think critically. A back-door culture has developed where things get done behind the scenes or through the “back door” and where priorities are set according to who you know and what influence you have. As a result, creativity and innovation have suffered over the past 30 or 40 years, which has resulted in a copy-cat business environment.  Only now, with talented engineers, scientists and business people being trained in China’s top universities and in America and Europe, the historical and exceptional creativity and inventiveness of the Chinese is being renewed. The Chinese have a long history of invention and now it is blooming again.

There are lessons we must learn from history in China, America and other countries.  We must do all possible to protect our education systems for all Americans at all levels.  We must not allow the elites or political parties in power to dismiss or reduce funding to our schools.  We must defend the objectivity and teaching of the sciences.  We must be vigilant in maintaining high standards for STEM education. We must support and defend teachers and researchers.  These people are building our future through our children and grandchildren.

2013-07-05 01.58.31I took the bullet train from Shanghai to Nanjing today, a journey in a pleasant 1st class, sparkling clean rail car at 200 km/hour, for about $30.  Rail is such a great way to travel in China.  It’s efficient, convenient and inexpensive, plus you see things you would never see from an airplane.

Along the way, in every direction, are miles and miles of factories.  They come in all shapes and sizes – small and squat to enormous smokestacks –apparently producing simple assembled products, electronics, plastics, castings and everything you can think of in between.  

Chinese Finance Minister Lou Jiwei told the G-20 meeting in 2014 that manufacturing accounts for nearly 60% of Chinese GDP, an unsustainable share which has created the problems of pollution and overcapacity, he said.  This is very evident as I traveled through the manufacturing areas between Shanghai, Wuxi and Nanjing.  The pollution was overwhelming; the skies were thick with a smoky fog and the sun was a muted disk low in the sky.  The pollution gets so bad from time to time that people wear surgical masks whenever they are outside during the most dangerous periods.

The Chinese government is no longer shying away from or denying allegations of the horrendous air quality.  In fact, in the latest government Five-Year- Plan, China is finally putting real muscle and money into environmental clean-up.  I expect to see substantial improvement over the next few years.  In addition, China plans to use the excess manufacturing capacity to address the needs of their own burgeoning middle class by producing products demanded at home.

Americans need to work on balancing the difference between the Chinese economy supported by 60% manufacturing and the US economy where only 11-12% is based on manufacturing.  Manufacturing is the fundamental backbone of a healthy economy.  We need to bring some of it back to the US- but very carefully.  We want skilled jobs that pay a living wage and don’t pollute the environment.

I recently had the opportunity to travel from the US to Europe to Asia and rode in taxis in all three places.  I was reminded that while a taxi ride may seem mundane, the differences are quite significant. 

 

Take London, for example.  The famous shiny black cabs are the pride of the city: neat, clean and the drivers are professionals who are required to take a test of their knowledge of London before they are allowed to drive a cab. 

 

You will experience the complete opposite in a place like Chengdu, China, a city of 14 million people, where you risk your life when you go for a wild taxi ride…that is IF the taxi driver knows where you want to go and is willing to take you there, after you argue over the destination and the price. It’s the Wild, Wild West of China, where traffic laws and standard driving rules are still in the early development stages.  When the ride is over, you’ll breathe a polluted, but grateful sigh of relief that you survived.

 

In Germany, the taxis are likely to be Mercedes Benz, which feels a little less threatening as the drivers go at break-neck speed to your destination.  Everyone in Germany will tell you that speed is safe. What is it about the Germans and their love of speed?

 

Then there is Seoul, Korea.  A taxi driver will simply refuse to take you anywhere he doesn’t want to go.  And knowing the secret between black cabs (those drivers speak English) and the silver cab (good luck trying to communicate) is important to a successful journey.

 

Un-huh…then there is New York City: taxi drivers in stinky cabs honk at one another, people, cars, and trucks for seemingly no reason at all, all day long and all night long.  On one journey in NYC, when I argued with the driver that my building was across the street in Times Square and I expected him to take me all the way there and not drop me in the middle of the chaos, he yelled at me, “get out of the cab, lady and walk!”

 

And San Francisco, where a drive through the steep hills at 0-60mph for every block, will take years off your life. The drivers are quite friendly and often chatty there, while they risk your life.

 

And then, there is Beijing.  If you don’t ask for the driver to turn on the meter, you will get charged 5-10 times more for the fare than you should.  On a recent trip from the Beijing airport to the Hilton Beijing, I asked for a meter cab.  The driver took me to a side street across from the Hilton, instead of the entrance, and unloaded my bags.  The fare was 58 RMB.  I handed the driver 100 RMB and asked for change and a receipt.  He got in his taxi and drove off with my 100.  I should have known better.

Recent stories in the Western press describe impending doom for Chinese manufacturing, relating the Chinese demise to Japan in the 1990’s.  But to real China-watchers and experts, this is a naïve view.  It assumes that the Chinese government will sit back and do nothing to correct the trends and that the Chinese economy will stagnate.

While Chinese manufacturing is not known for innovation, it really is just a matter of time.  With 700,000 graduating engineers per year, China is quickly becoming the world’s powerhouse in manufacturing engineering and in continuous improvement.  The next phase is innovation and optimization. 

To address innovation, the Chinese government advocates student exchange programs and invites thousands of visiting US professors into its universities to infuse creativity into the education systems. Over time, this will reignite the creative innovation spark that the Chinese displayed over thousands of years, inventing printing, gun powder, deep water bridges, massive sailing ships and irrigation to name a few.  While US politicians tell us not to worry because China cannot innovate, the Chinese are busy proving them wrong.

To address optimization, China has started on the journey to automation.  Automation and the adoption of software systems will dramatically increase productivity at the factory level and will drive continuous improvement and optimization.  Although this is a long road to travel, it is nonetheless the road Chinese manufacturers are on.

It’s time to wake up and smell the green tea.