The $1.4 Trillion Question by James Fallows
The Chinese are subsidizing the American way of life. Are we playing them for suckers—or are they playing us?
http://www.theatlantic.com/doc/200801/fallows-chinese-dollars
This snippet that drives the point home:
“In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.”
I think the highlight of the article is the author tracing the purchase of a $30 electric toothbrush at CVS to China, which begins at the top of page 3 with this paragraph:
“Let’s say you buy an Oral-B electric toothbrush for $30 at a CVS in the United States. I choose this example because I’ve seen a factory in China that probably made the toothbrush. Most of that $30 stays in America, with CVS, the distributors, and Oral-B itself. Eventually $3 or so—an average percentage for small consumer goods—makes its way back to southern China.
When the factory originally placed its bid for Oral-B’s business, it stated the price in dollars: X million toothbrushes for Y dollars each. But the Chinese manufacturer can’t use the dollars directly. It needs RMB—to pay the workers their 1,200-RMB ($160) monthly salary, to buy supplies from other factories in China, to pay its taxes. So it takes the dollars to the local commercial bank—let’s say the Shenzhen Development Bank. After showing receipts or waybills to prove that it earned the dollars in genuine trade, not as speculative inflow, the factory trades them for RMB.”
And a few paragraphs later:
“And thus our dollar comes back home. Spent at CVS, passed to Oral-B, paid to the factory in southern China, traded for RMB at the Shenzhen bank, “surrendered” to the PBOC, passed to SAFE for investment, and then bid at auction for Treasury notes, it is ready to be reinjected into the U.S. money supply and spent again—ideally on Chinese-made goods.
At no point did an ordinary Chinese person decide to send so much money to America. In fact, at no point was most of this money at his or her disposal at all. These are in effect enforced savings, which are the result of the two huge and fundamental choices made by the central government.”
And the Chinese people are less and less pleased about this, a development I understand and will follow. Like the aforementioned average Chinese person, I don’t decide to let our government make some of the decisions it does about spending. I vote as I can and contact my representatives, but it doesn’t mean they do what I say. I can, as one person, decide to send less money to China and stop subsidizing this cycle. All of us can. Most of my money, though not the government’s, is at my disposal. We are all in control of our own money, or should be, and most of us trying to get out of debt and save are aiming for control of our money.
So. I don’t buy goods from China because I don’t want to contribute to this cycle. It is simply not fair for Chinese workers to live the way they are, with a lower quality of life than they should have, while we Americans load up on seasonal bedding and more clothing than we can wear in a year and more shoes than we could wear out in five. I deplore entitlement-minded behavior and our country is full of it. Living without credit card debt and within your means, without using any cash “on loan” from anyone aside from yourself and your own earnings, can remove you from this cycle a bit more.
At the end of the day, we’re U.S. citizens whose government might be doing things we don’t agree with, but each of us can contribute LESS to this unsustainable cycle that has to end some day. It’s hard, but it’s going to be harder later. Buying cheaper goods seems to save money, but our being sheltered from the true cost of goods (i.e., the long-term impact of being beholden to China and at great injustice to the regular old Chinese working person) is what’s allowed us to accumulate so many things we don’t need: Cheap goods have only enforced the idea that we can and should have more, rather than less, and we are sinking ourselves into debt both as individuals and as a nation so we can have still more of it.
The Chinese are subsidizing the American way of life. Are we playing them for suckers—or are they playing us?
http://www.theatlantic.com/doc/200801/fallows-chinese-dollars
This snippet that drives the point home:
“In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.”
I think the highlight of the article is the author tracing the purchase of a $30 electric toothbrush at CVS to China, which begins at the top of page 3 with this paragraph:
“Let’s say you buy an Oral-B electric toothbrush for $30 at a CVS in the United States. I choose this example because I’ve seen a factory in China that probably made the toothbrush. Most of that $30 stays in America, with CVS, the distributors, and Oral-B itself. Eventually $3 or so—an average percentage for small consumer goods—makes its way back to southern China.
When the factory originally placed its bid for Oral-B’s business, it stated the price in dollars: X million toothbrushes for Y dollars each. But the Chinese manufacturer can’t use the dollars directly. It needs RMB—to pay the workers their 1,200-RMB ($160) monthly salary, to buy supplies from other factories in China, to pay its taxes. So it takes the dollars to the local commercial bank—let’s say the Shenzhen Development Bank. After showing receipts or waybills to prove that it earned the dollars in genuine trade, not as speculative inflow, the factory trades them for RMB.”
And a few paragraphs later:
“And thus our dollar comes back home. Spent at CVS, passed to Oral-B, paid to the factory in southern China, traded for RMB at the Shenzhen bank, “surrendered” to the PBOC, passed to SAFE for investment, and then bid at auction for Treasury notes, it is ready to be reinjected into the U.S. money supply and spent again—ideally on Chinese-made goods.
At no point did an ordinary Chinese person decide to send so much money to America. In fact, at no point was most of this money at his or her disposal at all. These are in effect enforced savings, which are the result of the two huge and fundamental choices made by the central government.”
And the Chinese people are less and less pleased about this, a development I understand and will follow. Like the aforementioned average Chinese person, I don’t decide to let our government make some of the decisions it does about spending. I vote as I can and contact my representatives, but it doesn’t mean they do what I say. I can, as one person, decide to send less money to China and stop subsidizing this cycle. All of us can. Most of my money, though not the government’s, is at my disposal. We are all in control of our own money, or should be, and most of us trying to get out of debt and save are aiming for control of our money.
So. I don’t buy goods from China because I don’t want to contribute to this cycle. It is simply not fair for Chinese workers to live the way they are, with a lower quality of life than they should have, while we Americans load up on seasonal bedding and more clothing than we can wear in a year and more shoes than we could wear out in five. I deplore entitlement-minded behavior and our country is full of it. Living without credit card debt and within your means, without using any cash “on loan” from anyone aside from yourself and your own earnings, can remove you from this cycle a bit more.
At the end of the day, we’re U.S. citizens whose government might be doing things we don’t agree with, but each of us can contribute LESS to this unsustainable cycle that has to end some day. It’s hard, but it’s going to be harder later. Buying cheaper goods seems to save money, but our being sheltered from the true cost of goods (i.e., the long-term impact of being beholden to China and at great injustice to the regular old Chinese working person) is what’s allowed us to accumulate so many things we don’t need: Cheap goods have only enforced the idea that we can and should have more, rather than less, and we are sinking ourselves into debt both as individuals and as a nation so we can have still more of it.