Presentation on theme: "The Coming China Wars A Presentation by Peter Navarro SMA Board of Directors Meeting October 18, 2007."— Presentation transcript:
The Coming China Wars A Presentation by Peter Navarro SMA Board of Directors Meeting October 18, 2007
Tonights 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
The Situation is Dire Continued job loss in key manufacturing industriesContinued job loss in key manufacturing industries Skyrocketing raw materials prices squeezing bottom lineSkyrocketing raw materials prices squeezing bottom line A collateral downward pressure on wagesA collateral downward pressure on wages
Its Not Just Blue Collar China continues to move up and across the value chainChina continues to move up and across the value chain –Autos and aircraft (up) Loss of customer base!!!!Loss of customer base!!!! –Biotech and pharmaceuticals (up) –From assembly to R&D and design (across)
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
Political Will Waning Each additional U.S. job offshored one less reason to fight –NAMs forked tongue message –Financial services & Chuck Schumer –Chamber of Commerce lobbying in Beijing –The Google-Yahoo syndrome
Proposed Solution Use China Price analysis as an organizing toolUse China Price analysis as an organizing tool Build a broader-based China Price CoalitionBuild a broader-based China Price Coalition –Industry, Labor, Environmentalists, Human Rights Activists, Consumer Advocates Fight the policy wars simultaneously on all five China Price frontsFight the policy wars simultaneously on all five China Price fronts
Broaden the Message 1.Manufacturing key to economic strength Good jobs and decent wagesGood jobs and decent wages 2.Promote energy efficiency 3.Protect the environment & and stop global warming 4.Ensure product and food quality 5.Beware Chinas financial nukes 6.Beware the Hot War threat 7.Beware the Space War threat
The China Price Chinas 19 th Century Mercantilism in a 21 st Century Age
The China Price Defined The ability of Chinese manufacturers to undercut the competition by 50% or more
The China Price Blitzkrieg 70% of DVDs and toys70% of DVDs and toys 50% of bikes, cameras, shoes, phone50% of bikes, cameras, shoes, phone >1/3 rd of air conditioners, color TVs, computer monitors, luggage, microwaves>1/3 rd of air conditioners, color TVs, computer monitors, luggage, microwaves Dominant in appliances, furniture, jeans and apparelDominant in appliances, furniture, jeans and apparel
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 !!
Weapons of Mass Production Cheap Wages40% *Web of Illegal Subsidies 17%17% Network Clustering16% *Currency Manipulation11% *Counterfeiting & Piracy8% Foreign Direct Investment3% *Lax Health & Safety Regs2.5% *Lax Environmental Regs2.5% TOTAL100%
Giving the Dragon Its Due Well-educated, well-disciplined, highly productive labor (40%)Well-educated, well-disciplined, highly productive labor (40%) Large reserve army of unemployed depresses wagesLarge reserve army of unemployed depresses wages –Over 100 million unemployed The Marxian FutureThe Marxian Future – million peasants to stream into Chinese factories in next 10 to 20 yrs This advantage isnt going away!This advantage isnt going away!
The Big Five Unfair Practices Web of Illegal Subsidies 17%17% Currency Manipulation11% Counterfeiting & Piracy8% Lax Health & Safety Regs2.5% Lax Environmental Regs2.5% TOTAL100%
Chinas 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!
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
Counterfeiting & Piracy Worlds 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
Lax Environmental Regs Most polluted country in the worldMost polluted country in the world –16 of 20 of worlds largest polluted cities –Rivers, streams, and oceans degraded –A cancer epidemic Provides real cost advantagesProvides real cost advantages –Scrubbers & pollution control technologies –Waste disposal Largest global warmerLargest global warmer –The coal plant explosion –The Asian brown cloud
Lax Health and Safety Regs The most dangerous place to work in the worldThe most dangerous place to work in the world –Dismemberment capital of the world The slave labor capitol of worldThe slave labor capitol of world Provides real (unfair) cost savingsProvides real (unfair) cost savings –Safety equipment –Liability costs
Foreign Direct Investment State of the art machinery & techState of the art machinery & tech –Japanese and Koreans in North –U.S. and Hong Kong in South –German engineering Best management practicesBest management practices –Fruits of the B-School tree Attracted by:Attracted by: –Large potential market –Chinese mercantilism & protectionism POINT: Much of FDI is attracted by unfair trading practices and Chinese protectionism!
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 !
A Roadmap to Victory Don t Play Checkers in a Chess World. Ron Vara
Building the Coalition Politics makes for strange bedfellowsPolitics makes for strange bedfellows –Industry –Labor –Environmentalists –Human Rights Activists –Consumer Advocates Must overcome natural distrustMust overcome natural distrust –Industry vs. labor –Industry and labor vs. environmentalists Recognize (and confront!) the corporate schismRecognize (and confront!) the corporate schism –Expose the offshoring lobby
Crafting the Message #1 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 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. Or This????
Message #2: Energy Efficiency
Message #3: Environment What happens in China doesnt stay in China!What happens in China doesnt 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.
Message #4: Product Safety
Message #5: Financial Nukes Americas loss of political independenceAmericas loss of political independence
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
Message #7: Space Wars Space program geared at seizing ultimate high groundSpace program geared at seizing ultimate high ground Manned programs to moon, Mars, JupiterManned programs to moon, Mars, Jupiter Beidus GPS alternativeBeidus GPS alternative To Serve Man?To Serve Man?
The Chinese Are Coming! Preoccupied with Iraq, U.S. on collision course with ChinaPreoccupied with Iraq, U.S. on collision course with China China Price analysis shows China is real protectionist!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!
Attack on Every Front The WTOThe WTO Department of CommerceDepartment of Commerce U.S. Trade RepresentativeU.S. Trade Representative Treasury DepartmentTreasury Department White HouseWhite House CongressCongress –Individual bills –An omnibus bill!!!!!!!!!!!!!!!!!!
Time for Q&A! Cheap Wages40% *Web of Illegal Subsidies 17%17% Network Clustering16% *Currency Manipulation11% *Counterfeiting & Piracy8% Foreign Direct Investment3% *Lax Health & Safety Regs2.5% *Lax Environmental Regs2.5% TOTAL100%