It’s been a half-century since President Richard M. Nixon set the United States firmly on the path to globalism. The date was February 28, 1973, when the President sat down with Premier Chou En-lai of the People’s Republic of China and signed the Shanghai Communique. Named after the city, they were meeting in, this was merely an agreement to talk. But it was the most revolutionary economic statement of the Twentieth Century.
The Communique would set in motion a trading agreement between what would become the two largest economies in the world. For China, this marked when they emerged from their pariah state to become a full member of the community of nations. From a diplomatic point of view, this was when China positioned itself to become a recognized part of the United Nations and eventually replaced Taiwan on the Security Council (UN Resolution 2758).
As dramatic as the diplomatic emergence of China was, it was in the economic sphere that China shone. Although it was a long and arduous task, China eventually grew to become the world’s manufacturing hub. To achieve this goal, China had to upgrade its plants and equipment. But primarily through the technological aid of the Western Developed nations, principally the United States, China acquired the technology to compete internationally.
But that’s only half the story of how China has become today’s economic powerhouse. Before many of those Western Nations existed, China had been a trading center. Merchants for multiple generations had learned how to exploit a market and control price advantages to capture another nation’s trade. With the direct intervention of the CCP (the Chinese Communist Central Party), which subsidized their effort, Chinese companies became the low-cost providers of American brands in electronics, personal computers, smartphones, and other hi-tech goods.
This Chinese strategy suited the American elites to a “T.” For years, the American Political class had been restricting American manufacturing. The “Rust Belt” is a startling example of a lack of clean air and water standards. The fact that the Cuyahoga River in Ohio was so polluted that it caught fire was the seminal event that united the country in its fight against pollution.
That fight began with Nixon and his environmental and safety measures, principally the National Environmental Policy Act (NEPA). For the next decade, the United States enacted the most stringent environmental requirements in the world. To this day, the decade of the 1970s is known as the “environmental decade.”
Of course, there were two ways to solve the nation’s environmental issues: we could have cleaned up our plants and factories. But that would have cost much money and taken years to complete. On the other hand, Nixon presented an alternative. Why not offshore those plants to China? China was ready and willing to replace our factories with their own. Moreover, China had little to no environmental requirements or workplace regulations.
China was, you’ll pardon the expression, like the wild, wild west. Free and open, and willing to produce cheaper goods than we could ever match with our more regulated industry.
And so the exodus began. American factories, by the droves, moved across the Pacific. The elites were happy, as profit margins, driven chiefly by this low-cost Chinese production, continued to increase. The overall effect on the American economy was profound. Consider this: the most profitable companies, the ones with the most significant incomes, all follow this business model, American marketing with offshore (principally Chinese) production. Almost the entire US Tech Industry now has its manufacturing facilities in Asia.
Unfortunately, there was one group that suffered: working Americans. That’s right, and the 21st Century has seen a steady reduction in the number of US Citizens who are gainfully employed. Indeed, other factors have also contributed to the decrease in the number of American workers, chiefly the COVID-19 pandemic. Still, there can be little doubt that the massive move of American factories to other countries has also contributed to that trend.
America moves jobs to China. It’s no accident that as Chinese manufactured goods began to dominate trade (red line, right scale). Americans lost jobs (US participation rate, blue line, left scale).
Americans have come to accept the “Made in China” label for generations. Seeing a Chinese brand on your clothes, smartphone, personal computer, or retail goods is now perfectly acceptable. As one Wag noted, shopping in Walmart is like shopping in Beijing.
However, in Washington, things are changing. All those offshore goods are no longer as popular as they once were with our politicians. Although their methods and goals differ, President Trump and Biden have pursued goals that could significantly reduce our trade with China.
President Trump began reducing Chinese Trade by imposing Tariffs on certain Chinese items. Motivated principally by economic concerns, Trump saw that the Chinese needed to compete on a level playing field. The combination of cheap labor, safety or environmental standards that are far less than the US standards, and financial support from the CCP meant, to Trump, that the Chinese Manufacturers could undercut Americans on price. The Chinese were “dumping” (selling at artificially low prices) their goods and ultimately capturing the American Markets.
On the other hand, President Biden comes at the trade issue from a very different place. Biden has been the most aggressive President in using the economy to achieve political objectives. He has wielded “Sanctions” like a sword. And his chief opponent has been Russia. Although, as we’ve noted before Russian Sanctions began in 2014, it has been Biden in his brief time in office that has ramped up their use, cutting off all imports of Russian Oil and Gas, expelling Russia from the SWIFT International Settlements System, and seizing Russian Central Bank and private assets.
This Sanctions Battle against Russia has driven them closer to China and the other BRICS Nations than ever before. Russia uses the Chinese International Settlements Systems (CIPS) to facilitate trade today. It sells much of its oil and gas and agricultural products to China, India, and the rest of the BRICS Nations.
Overall, the result of Biden’s aggressive Sanctions Policy has been to curtail American dominance in international trade and finance. And to cast the Global South free from the American hegemony. Washington assumed, of course, that the rest of the world could not “live without us.” However, that remains an open question. Currently, the BRICS Nations are doing quite well. Only time will tell how successful this Biden global trade policy will be.
But we do know that the American Manufacturing Policy of the last half Century is ending. From here on, the United States will need to bring back essential production and supplies if we expect to maintain our quality of life.
