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Is China attacking USA? Investment in American industry may come to naught

By Catholic Online (NEWS CONSORTIUM)
May 31st, 2012
Catholic Online (www.catholic.org)

American manufacturing is now staring at the oncoming threat of a global economic slowdown, after investing hundreds of thousands of dollars in high tech equipment; Drew Greenblatt's manufacturing business is beginning to see a return on that investment. Business had been up 20 percent last year at Marlin Steel, which makes wire baskets for industrial customers.

LOS ANGELES, CA (Catholic Online) - Exports are currently helpful. The company has just shipped to China a $20,000 order made at his Baltimore, Maryland factory with steel supplied by a mill in Illinois.

Low wages and low-cost manufacturing used to make Chinese markets tough for U.S. manufacturers to break into. However, with rising wages in China, American companies are having second thoughts about moving their manufacturing jobs to China, Greenblatt said.

"All of a sudden, if your math says, 'I've got to pay the guy $7.50 an hour in Shanghai or I can hire a guy for $12 an hour in Canton, Ohio,' why would I do it in Shanghai?" Greenblatt says.

"I've got intellectual property issues over there, there's no rule of law, there's a lot of corruption.  Plus if I make it here, I get the stuff six weeks faster: there's no freight. So a lot of the reasons to push jobs overseas are starting to fall apart."

Other companies are "waking up to smell the coffee," as advice columnist Ann Landers used to say. A report in March by the Boston Consulting Group found seven industry groups, selling about $200 billion in Chinese-made imports, that will likely shift production back to the U.S. to evade rising costs in China. That could add between $20 billion to $55 billion to U.S. gross domestic product before the end of the decade.

U.S. export gains in Chinese and other global markets will create between two million and three million American jobs, lower the U.S. unemployment rate by between 1.5 to 2.0 percentage points and cut the U.S. merchandise trade deficit by 25 to 35 percent, according to the study.

Demand for Chinese exports is being hindered by the ongoing recession in Europe, China's largest trading partner. However, the hit to China's exports so far has not as been as bad as expected compared to the sharp downturn that followed the financial panic of 2008.

According to Carl Weinberg, chief economist at High Frequency Economics, lost exports amount to about $300 billion, about half the losses from the 2008 downturn and the Chinese economy is better able to weather the loss because it's large and its currency is stronger than in 2008, he said.

Weinberg figures the decline in exports hasn't run its course and could get a lot worse.

The slowdown in China is also starting to take a bite out of the economies of smaller, emerging economies and trading partners that supply the raw materials needed to feed China's export machine.

"Asia should be very worried if the European situation continues to unravel," Rob Subbaraman, chief Asia economist, at Nomura Group says. "It can handle moderate growth in Europe or the U.S. But if we start to move toward a deep recession there's a tipping point where Asia gets hit very hard again."

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