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The Coming China Wars

The Coming China Wars. A Presentation by Peter Navarro SMA Board of Directors Meeting October 18, 2007. Tonight’s Message. Develop a more broad-based “China Price” strategy and broader coalition to counter the growing China threat to American industry and the U.S. economy.

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The Coming China Wars

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  1. The Coming China Wars A Presentation by Peter Navarro SMA Board of Directors Meeting October 18, 2007

  2. Tonight’s Message Develop a more broad-based “China Price” strategy and broader coalition to counter the growing China threat to American industry and the U.S. economy

  3. The Situation is Dire • Continued job loss in key manufacturing industries • Skyrocketing raw materials prices squeezing bottom line • A collateral downward pressure on wages

  4. It’s Not Just Blue Collar • China continues to move up and across the value chain • Autos and aircraft (up) • Loss of customer base!!!! • Biotech and pharmaceuticals (up) • From assembly to R&D and design (across)

  5. A Weak Opposition • Political opposition fragmented • Industry • Labor • Environmentalists • Human rights activists • Consumer advocates • Political message narrow and compartmentalized • Each interest group talks about its own interests • Jobs, Unions, Global Warming, Tibet • Policy wars being fought piecemeal

  6. Political Will Waning • Each additional U.S. job offshored one less reason to fight • NAM’s “forked tongue” message • Financial services & Chuck Schumer • Chamber of Commerce lobbying in Beijing • The Google-Yahoo syndrome

  7. Proposed Solution • Use China Price analysis as an organizing tool • Build a broader-based China Price Coalition • Industry, Labor, Environmentalists, Human Rights Activists, Consumer Advocates • Fight the policy wars simultaneously on all five China Price fronts

  8. Broaden the Message • Manufacturing key to economic strength • Good jobs and decent wages • Promote energy efficiency • Protect the environment & and stop global warming • Ensure product and food quality • Beware China’s financial “nukes” • Beware the Hot War threat • Beware the Space War threat

  9. The China Price China’s 19th Century Mercantilism in a 21st Century Age

  10. The China Price Defined The ability of Chinese manufacturers to undercut the competition by 50% or more

  11. The China Price Blitzkrieg • 70% of DVDs and toys • 50% of bikes, cameras, shoes, phone • >1/3rd of air conditioners, color TVs, computer monitors, luggage, microwaves • Dominant in appliances, furniture, jeans and apparel

  12. How Does China Do It? • Year-long research project at UCI • Team of 100 MBAs identified and analyzed “eight major drivers of China Price” • !! Five of the eight drivers represent unfair trade practices !! • !! Half or more of China Price advantage due to Chinese mercantilism and protectionism !!

  13. Weapons of Mass Production

  14. Giving the Dragon Its Due • Well-educated, well-disciplined, highly productive labor (40%) • Large “reserve army of unemployed” depresses wages • Over 100 million unemployed • The Marxian Future • 300-500 million peasants to stream into Chinese factories in next 10 to 20 yrs • This advantage isn’t going away!

  15. The “Big Five” Unfair Practices

  16. China’s Web of Subsidies • The biggest outrage • Subsidized energy and water • Subsidized or free land • Cheap or free capital • VAT tax rebates • Protection of internal markets • China is the real protectionist!

  17. Currency Manipulation • China pegs the yuan to the dollar • Grossly undervalued (20% to 40%) • A “tariff” on US exports • Overstimulates US imports • Forces rest of Asia to manipulate their currencies • Extremely destabilizing to international monetary system and free trade

  18. Counterfeiting & Piracy • World’s biggest pirate nation • Not just Louis Vuitton & DVDs • Provides real UNFAIR cost advantages • R&D • Marketing • IT • Public health implications • From Lipitor to Viagra • Pet food

  19. Lax Environmental Regs • Most polluted country in the world • 16 of 20 of world’s largest polluted cities • Rivers, streams, and oceans degraded • A cancer epidemic • Provides real cost advantages • Scrubbers & pollution control technologies • Waste disposal • Largest global warmer • The coal plant explosion • The Asian brown cloud

  20. Lax Health and Safety Regs • The most dangerous place to work in the world • Dismemberment capital of the world • The slave labor capitol of world • Provides real (unfair) cost savings • Safety equipment • Liability costs

  21. Foreign Direct Investment • State of the art machinery & tech • Japanese and Koreans in North • U.S. and Hong Kong in South • German engineering • Best management practices • Fruits of the B-School tree • Attracted by: • Large potential market • Chinese mercantilism & protectionism POINT: Much of FDI is attracted by unfair trading practices and Chinese protectionism!

  22. Major Conclusions • China Price unfair advantage multifaceted • No one magic policy bullet to stop Chinese juggernaut Must attack “Great Protectionist Wall of China” on all five China Price fronts!

  23. A Roadmap to Victory “Don’t Play Checkers in a Chess World.” Ron Vara

  24. Building the Coalition • Politics makes for strange bedfellows • Industry • Labor • Environmentalists • Human Rights Activists • Consumer Advocates • Must overcome natural distrust • Industry vs. labor • Industry and labor vs. environmentalists • Recognize (and confront!) the corporate schism • Expose the offshoring lobby

  25. Crafting the Message #1 This???

  26. Or This???? American steel has been one of the hottest plays on Wall Street for the past 5 years. With a 5.7 percent annual productivity jump over the past decade, this gleaming industry has added $350 billion and 1.2 million direct and indirect jobs to the economy. American industries across the broader manufacturing sector have precisely the same kind of prospects and potential as our reborn steel industry– if we act together now.

  27. Message #2: Energy Efficiency

  28. Message #3: Environment • What happens in China doesn’t stay in China! Unlike heavy carbon dioxide emitting steel producers overseas, American steel has passed the Kyoto target by 240 percent through hi-tech advancements achieved. This includes a 29 percent improvement in energy efficiency since 1990.

  29. Message #4: Product Safety

  30. Message #5: Financial “Nukes” • America’s loss of political independence

  31. Message #6 Hot War Threat • Military budget growing twice as fast as economy • Largest standing army in world • Developing deep water navy and nuclear sub capabilities • Anti-satellite capability will neutralize U.S. air superiority • Cyber warfare and hacking

  32. Message #7: Space Wars • Space program geared at seizing ultimate high ground • Manned programs to moon, Mars, Jupiter • Beidu’s GPS alternative • “To Serve Man”?

  33. The Chinese Are Coming! • Preoccupied with Iraq, U.S. on collision course with China • China Price analysis shows China is real protectionist! America ultimately pays for cheap Chinese goods with a loss of jobs, stagnant income, skyrocketing energy prices, unsafe products, and a more polluted world!

  34. Attack on Every Front • The WTO • Department of Commerce • U.S. Trade Representative • Treasury Department • White House • Congress • Individual bills • An omnibus bill!!!!!!!!!!!!!!!!!!

  35. Time for Q&A! www.peternavarro.com

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