Our National Obsession with China

This is not the first time weve been obsessed about another country and what its doing to the American economy.

For decades, the focus of that national obsession was the Soviet Union because of its military might, its designs on expanding the misery of communism and its technological achievements that for a time eclipsed our own (howdy, Sputnik!).

In the wake of oil supply and price shocks in the 1970s, we made room for fretting about the Middle East, having had an all-too-vivid demonstration of what putting a kink in the gas hose could do to our economic engine.

In the 1980s, we shifted our worrying to Japan and its emerging dominance of sectors such as automobiles and consumer electronics that American companies once hired American workers to produce.

So what were going through with China isnt all that unfamiliarexcept China poses unprecedented challenges.

Is China a potential military foe or does it have too much self-interest to indulge in belligerence? Is China evolving to a Western-style market system or has it engineered a newer, softer facade on an old-style, command-and-control economy? Does doing business in China make American companies more competitive and give them access to a huge new market or is it a method of handing your know-how and your customers to our competitors?

Even though the circumstances and particulars of previous rounds of international competition vary, one common lesson emerges, one that is worth keeping in mind as we contemplate those twinned questions of whither China? And whither (or perhaps its wither) us?

That lesson: Theres nothing inevitable about the outcome of these competitive challenges.

The Soviet Union did not subsume the West; thanks to internal and external pressures, the Eastern Bloc fell apart.

The OPEC stranglehold lasted for as long as it took the United States to develop new oil sources and improve conservation and energy efficiency.

Japan blunted its own economic prowess with a real-estate bubble and banking-system weakness (gee, does this sound familiar?) that translated into a decade-long recession the country is still trying to work itself free of.

The conventional lament about China is that eventually its economy will hold all our wealth, all our technology and all our jobs, thanks to plentiful and cheap labor, its trade and currency policies, and our own short-sighted strategic bungling.

But lately there have been signs that the seemingly unstoppable charge toward that unhappy outcome is slowing a bit.

A growing labor shortage in China, according to Bryan Jaffe, senior vice president of Cascadia Capital, is causing folks to undergo a bit of a panic … especially companies that dont have big sourcing clout because of their size. That change could translate into opportunities for emerging markets or it could mean some production work migrating back here.

Mike Quinn, vice president of manufacturing at Seattle-based Northwest Center, says that shifts already happening. When the value of the dollar changes, those guys arent going over to China anymore. All of a sudden, the buy scenario doesnt make sense and youve got to go domestic. Weve picked up a bunch of new customers.

Scott MacIndoe, chief executive of Seattle-based composite materials supplier Fiberlay, concurs: I also see a lot of companies starting to come back from China, with freight rates increasing, labor costs starting to go up and the quality not there. Theyre finding that even though its more expensive to manufacture here, sometimes its lower cost in the long run.

In fact, theres even a term for this movementreshoring. One reshoring organization argues that once all costs of producing in China are factored intransportation, insurance, trying to manage personnel thousands of miles away, threats to intellectual propertyproduction in America comes off looking much better.

Just as theres a danger in extrapolating any trend to its most disastrous conclusion, theres also a hazard in seizing on scattered signs of a countertrend and presuming the original trend has somehow been defused or deflected. Indeed, the Alliance for American Manufacturing has dismissed reshoring as so much happy talk diverting attention from hard negotiation on issues such as currency manipulation.

But at the very least, these developments suggest our decline is not assured. Neither, we should remember, is our revival. Just as we contributed mightily to the former, the latter will not occur simply because its a future we much prefer.