What Americans won’t acknowledge about their manufacturing jobs

Posted: October 14, 2011 in Business, Politics
Tags: , , , ,

Last week the US senate passed a bill aimed at punishing China for currency manipulation with tariffs, which is stupid for a number of reasons, but I want to talk about the underlying narrative that springs up every election cycle in Washington: Those cheating abusive Chinese commies are stealing our hard-earned American jobs!

Dozens of congressional candidates ran ads to this end in 2010. Perhaps the most articulate was this one for Ohio Congressman Zack Space, where it shows a crowd of a dozen Chinese people and says, “Gibbs (his opponent) wants more free trade with China to increase their standard of living.”

Then it cuts to a lone white man and says, “…but what about Ohio?”

It perfectly captured the attitude many Americans, and ergo the politicians that depend on their votes, have that they’re entitled to these jobs as Americans. Protectionist bills like what the senate just passed enjoy wide populist support because we need to protect American jobs for Americans damn it! Well let’s look at one simple statistic:

Average manufacturing job hourly wage

USA: $22.30

China: $3.10

(Source: Time Magazine)

On average you can hire seven Chinese workers for the price of one American. I’m a proud American, but if one of us loses a job to seven Chinese, I don’t see much problem with that; especially when you consider a few other things.

Things aren't so hot for white collar Americans either

That average Chinese worker making $3.10 an hour probably didn’t just waltz over to the local car factory. Odds are she left her entire family behind to work in a distant manufacturing hub like Dongguan or Wenzhou where she lives in a dorm and sends the bulk of her paycheck back home to support her child and parents, whom she’ll be lucky to see once a year.

She might work 10-12 hours each day, maybe taking only one day off per month. Say what you will about human rights, but this is usually by choice. If she’s already this far away from home, there’s no sense wasting time. She wants to work as much as possible. So she’s happy to ignore overtime regulations if it results in more hours. And she’s very grateful for this job. It gives her far better prospects than she’d have back home.

(Read: Factory Girls by Leslie Chang. An excellent chronicle of the lives of Chinese factory workers)

This doesn’t just apply to factory workers. Ask a random waitress or cleaning lady in a big city like Beijing. Chances are they’re not from Beijing and they have a similar situation to the factory worker.  How many laid-off Ohio workers do you imagine would be willing to leave their family behind and move to Florida to live in a dorm and work at a waitressing job?

You can point to abusive working conditions, defective products or intellectual property theft. These things certainly exist, but they’re more a shameless excuse for protectionism than they are a significant detriment to America’s economy. They’re no justification for boxing out all Chinese manufacturers. And yes, China manipulates its currency, but it has appreciated 20% since 2005. And no matter how much it appreciates, it won’t even out the mammoth manufacturing cost imbalance.

In the latest Republican debate Honeywell CEO David Cote pointed out that, “Twenty years ago there were a billion people actively participating in the global economy.  Today there are more than four billion active participants in the global economy, with China, India, former CIS states and other emerging economies now in the game. While that is a good and peaceful phenomenon, it also means we need to compete more strongly than we did in the past.”

People like Mitt Romney are pushing the American victim of red China narrative because it’s what Americans want to hear. Telling them the truth would be political suicide; that their previous lifestyles were superficially inflated and that they need to brace for permanent sacrifice and dramatically lower their living expectations.

There are plenty of things the US government can do to make the country more competitive in education and clean energy that don’t need to resort to protectionism, but ultimately it’s on Americans to accept the tough reality of having to sacrifice more for less money. The global playing field is balancing out. For emerging economies like China’s, that means an upswing in quality of life. Unfortunately for the US, it means a fall down to the world mean. When viewed objectively, that’s not a bad thing.

Comments
  1. While I don’t necessarily fault China for being an attractive place to do business due to cheap labor, it’s undeniable that the way they run imports and exports is unfair. Currently,the US only taxes Chinese imports by around 1.4% while China taxes American goods by 17.5%. It’s not fair and it’s time that China has its feathers ruffled.

  2. Eugene says:

    Your analysis completely ignores two important factors: first, the difference in productivity – American manufacturing workers are significantly more productive than Chinese, justifying (part of) the wage difference. Second, labor costs are only a part (and often, a very small part) of the overall production costs. So, for example, even a small currency undervaluation can easily tilt the balance in favor of a Chinese manufacturer in the situation when a lot of manufacturers have margins in low single percents. So while it’s emotional to blame China for all US problems, your post is no less emotional.

    • sinostand says:

      American workers are more productive, but that’s because American manufacturing is much more mechanized. It’s not as if it’s because Americans work harder. And yes, you’re right that labor costs are only a part of overall costs and certainly currency manipulation and other unfair factors do have an impact on some American jobs. My point though is that most jobs leaving for China are leaving legitimately and if Americans want to hold on to them they have to strip this sense of entitlement and do things to narrow the gap between how a Chinese worker lives and how an American worker has traditionally lived. Call that emotional if you want, but it’s that, not looking to leaders to get tough on relatively insignificant trade issues, that’s going to keep the vast majority of American workers their jobs.

  3. Americans manufacturing workers are more productive? Last I checked, most American workers work 8 hours a day for 5 days week while the average Chinese manufacturing worker works 12+ hours a day 5+ days a week. Just throwing that into the mix.

    • Eugene says:

      @Sinostand: currency manipulation is not an “insignificant trade issue”. Let’s say rmb is 10% undervalued (some in Congress claim it’s 40%, but that’s BS). A lot of Chinese manufacturers’ margin is 2-3%. This tells you that if yuan was fairly valued, their business model would be completely unsustainable. And I’m not even mentioning massive protectionism China engages in in “strategic industries” (wind, solar, rare earths jump to mind).

      BTW, Sino, I LOVE your blog and follow you on Twitter – would it be possible to twit links to new posts when they appear on this site?

      @beaufortninja: Productivity measures output per hour, not hours worked.

  4. Eugene says:

    BTW, a timely article on the topic: http://www.economist.com/node/21532339

    • sinostand says:

      Currency manipulation is a significant issue as a whole, but from the perspective of American workers I’d say it isn’t. Trying to correct it as a means to bring back US jobs presumes that, if the exchange rate were correctly adjusted, those jobs would return rather than go down the wage ladder further to places like Vietnam. Most wouldn’t. And it presumes China won’t retaliate against punitive measures like tariffs. They almost certainly would while pointing to US policy like QE2. And productivity in all of East Asia is increasing 5 times as quickly as in the US, so the US productivity advantage is narrowing. Since China is catching up technologically (although they still have a long ways to go), that leaves lowering wages as one of the only real long-term solutions to competition from China.

      BTW, I usually do tweet a link to new posts, but I’ll start doing it 2 or 3 times to make sure it’s not glossed over.

  5. I worked for 25 years as a production supervisor in a high-tech factory. All 4000 jobs went to China. Our wages and salaries were too high, benefits too high and in one department I had to put up with a 20% absenteeism rate. Ten minute breaks were 20 minutes long. Sure it was a union shop but I worked in non-union shops that were just as bad.

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