American corporations bet big on China then the bug bit and the bet didn’t quite pay off.
The bug is the coronavirus and we see its symptoms in the stock market swoon.
Corporate America bet they could profit by replacing well-paid American labor with Communist China’s cheap regimented workforce.
The MBA whiz kids must have known by closing American factories they were laying off their customers as well as their workers.
But they figured sales to China’s managerial class—large in number though a small percentage of total population—would more than make up for lost sales to what was once a prosperous middle class in America.
It was a cold, spreadsheet-driven bottom-line calculation stripped of any attachment to nationality, culture, or human values.
The calculation had certain premises packed into it.
One was the international specialization of labor: Countries should specialize in entire industries the same way workers in a factory specialize in a particular production task, i.e. metal punching, lathe operations. All manufacturing should be done in China, data entry in Ghana, garment production in Haiti, computer programming in India, etc.
This assumes all people in a given country are uniform in their inclinations and skills, which on its face is ridiculous if not racist. More likely and perhaps more disturbing is the assumption human beings are infinitely mutable and can be molded into whatever central planners (or “the market”) demands.
In reality, some individuals are more inclined to be mechanics and others accountants, and every country will have some of each. This is what led Alexander Hamilton to argue for developing domestic manufacturing industries in the new republic in order to “[furnish] greater scope for the diversity of talents and dispositions which discriminate men from each other.” He believed not everyone would make a good farmer in a Jeffersonian Arcadia.
The cover story for the international division of labor is that it’s determined by the inherent, immutable strengths each nation and its populace possess.
The absurdity of the proposition as well as its shortcoming is apparent when one suggests country X is inherently predisposed to produce concert pianists and that’s what it should specialize in.
The world doesn’t need as many concert pianists as it does iPhones or even keyboards and poor indeed would be the nation that focuses exclusively on tickling the ivories leaving it to others to make them.
But in truth, we know it’s the hand of Man not the hand of God that decides who does what and where.
It was one man who decided iPhones would be made in China.
Apple CEO Tim Cook took the production of Apple’s gadgets out of the United States and built the archipelago of factories inside Communist China that supplies the world.
He is quite proud of the world he built and like so many who cannot admit when he’s made a mistake he refuses to remake it.
“Some operations executives suggested as early as 2015 that the company relocate assembly of at least one product to Vietnam. That would allow Apple to begin the multiyear process of training workers and creating a new cluster of component providers outside the world’s most populous nation… Senior managers rebuffed the idea,” the Wall Street Journal tells us.
The tariffs didn’t change Cook’s mind. He believed they would go away and the world would return to business as usual.
Even the coronavirus, which closed Apple’s factories and retail stores in China hitting its bottom line from both the supply and demand side, hasn’t been enough to give Cook second thoughts.
Asked about moving beyond his reliance on China, Cook told Fox Business News, “My perspective sitting here today is that if there are changes, you’re talking about adjusting some knobs, not some sort of wholesale fundamental change.”
“There will always be unpredictable things that come up . . . We work through earthquakes, tornadoes, fires, floods, tsunamis,” Cook said.
But Communist China is not a natural disaster—it is not one of those “unpredictable things that come up.”
The problems with China are manmade and entirely predictable.
That’s why this latest turn of events is not a black swan—it’s chickens coming home to roost.
Authoritarian regimes are opaque; officials are loath to report the truth for fear of being blamed for problems. We saw this at work in Wuhan. The doctors who first reported the infection were arrested and made to confess to the error of their ways.
You don’t need a Nobel Prize to see the problems of central economic planning—and China is a centralized, authoritarian regime. Friedrich von Hayek, who won the Nobel, understood knowledge and information can only be utilized fully in a decentralized market system with free competition and pricing.
Memo to Cook: Communists lie.
The fact is, American business leaders like Cook made a deal with the devil. China gave them free land, free factories, and cheaper labor. They gave China technology, manufacturing know-how, and workforce development.
Like the Lenape Indians who traded Manhattan island for glass beads, Americans got cheaper stuff here today, gone tomorrow; China got industrial and technological capabilities good for the long term.
Thanks to the coronavirus, Americans are now aware that medicines we depend on are manufactured in China.
While the administration plans a comprehensive and effective public health response to the coronavirus, we must also plan an economic response to repatriate the production of technology and goods essential to our way of life.
It’s not just pharmaceuticals.
We need to identify potential shortfalls in defense, aerospace, automotives, telecommunications, and other industries. Experts can catalog what we make in America, what’s available from industrial democracies and allies, and where we are dependent on China.
Then we need to identify how best to reshore or near-shore the production of these goods. Those who say business can’t move its supply chains are wrong—business moved them to China a few years ago and they can move them again.
That was the goal of the America First agenda of tax reform, trade reform, regulatory reform, energy reform, and infrastructure development. It might mean accelerated tax write-offs for new plants and equipment within our borders.
Yet there is more to be done.
Above and beyond economic incentives, we need a renewed sense of national purpose.
The bloodless CEOs who outsourced our industries see themselves as global citizens.
The young men and women of the greatest generation who fought and died to defeat fascism didn’t.
They saw themselves as proud Americans.
They fought not for “a global economy,” but for their wives, their homes, their country, their way of life, ideals they believed in however imperfectly we lived up to them. (That’s how it works with ideals, by definition.)
Martin Luther King said the ultimate measure of a man is where he stands at times of challenge.
Just as we will stand together in the face of this public health challenge, we will rebuild our productive economy and our country.
Corporate America justified its investments in faraway countries under the aegis of globalism, an ideology the Chinese Communist Party actively promotes through its diplomatic and propaganda arms.
But Beijing has a different ruling ethos: “Globalism for you, nationalism for us.”