Made in China - the Effects of Outsourcing

ANewStart

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As America plunges in to recession, many consumers are looking for cheaper, more economical solutions to their daily needs. As companies compete against each other to meet our growing demands for cheaper products, many are forced to outsource to China, and India. Such actions complicate things in countries where the companies were originally based, causing many problems.

When companies outsource to cheaper countries like China, the most prominent thing that happens is unemployment in the original country. Even though cheaper products is better for the consumer, many times this can lead to a weakening infrastructure and possibly a recession in the country that they were originally based in. Many of those countries need those jobs to support their economy. For example, in America, unemployment rates are rapidly increasing, and more and more main working class people are just hired immigrants illegal and legal. Before, the American image was hard working, doing any jobs for our country. Now, I'm not so sure we have the same image, partly from the unpopular wars that we fight.

Outsourcing to only a few main countries also cause other problems. If China's economy falls into a recession, much of their exports will stop, causing a major decrease in the number of supplies to many major countries like the U.S.. Outsourcing is sort of like buying oil from the Middle East; we are sending our jobs and money overseas, that could have been used to help stimulate our own economy, not theirs. If China is to become a world superpower along with the U.S., it won't be entirely from their own actions that cause their increase in power; it will also be from our actions too, handing them our ability to have a true workforce.
 
Werbung:
When companies outsource to cheaper countries like China, the most prominent thing that happens is unemployment in the original country. Even though cheaper products is better for the consumer, many times this can lead to a weakening infrastructure and possibly a recession in the country that they were originally based in. Many of those countries need those jobs to support their economy. For example, in America, unemployment rates are rapidly increasing, and more and more main working class people are just hired immigrants illegal and legal. Before, the American image was hard working, doing any jobs for our country. Now, I'm not so sure we have the same image, partly from the unpopular wars that we fight.
This graph shows the cumulative balance of trade since 1991. We are loosing about 2 billion dollars a day to the imbalance. Since 1960 we have lost 2 out of every 3 manufacturing jobs. It makes our economy very unstable. The only reason that the US didn't go into recession earlier is that we went into debt. Since 1991 we have lost $6 Trillion to the imbalance of trade!
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Outsourcing to only a few main countries also cause other problems. If China's economy falls into a recession, much of their exports will stop, causing a major decrease in the number of supplies to many major countries like the U.S.
That is true, but it seems that what happened is the opposite, and the more likely case. Our recession is bringing China and the rest of the world down.
 
Looks like stupidity to me,
The forces of GREED INC. are killing the goose that laid golden eggs!

Unless the REAL goal is a huge population reduction by "civil" war and starvation.

There are a LOT of sillyassed games that are a waste of time to get involved with but people are doing it anyhow - I'm referring to the "LEFT" vs "RIGHT" game. SNOT REEL!
 
That is true, but it seems that what happened is the opposite, and the more likely case. Our recession is bringing China and the rest of the world down.

If demand for goods goes down in the States then supply is reduced in China which forces plants onto short time or to make people redundant. This reduces demand in China for local goods and also luxury goods that they may have imported from the States....... :( vicious circle huh!
 
As America plunges in to recession, many consumers are looking for cheaper, more economical solutions to their daily needs. As companies compete against each other to meet our growing demands for cheaper products, many are forced to outsource to China, and India. Such actions complicate things in countries where the companies were originally based, causing many problems.

This is a somewhat bogus statement right off the bat.

When companies outsource to cheaper countries like China, the most prominent thing that happens is unemployment in the original country. Even though cheaper products is better for the consumer, many times this can lead to a weakening infrastructure and possibly a recession in the country that they were originally based in.

I do not agree. What it leads to is a specialization of resources that makes the US economy that much more productive.

Many of those countries need those jobs to support their economy. For example, in America, unemployment rates are rapidly increasing, and more and more main working class people are just hired immigrants illegal and legal. Before, the American image was hard working, doing any jobs for our country. Now, I'm not so sure we have the same image, partly from the unpopular wars that we fight.

What does image have to do with globalization?

Outsourcing to only a few main countries also cause other problems. If China's economy falls into a recession, much of their exports will stop, causing a major decrease in the number of supplies to many major countries like the U.S..

Their exports will not "stop", export growth will perhaps stop, but as long as there is a demand for the good, it will get made, recession or not.

Outsourcing is sort of like buying oil from the Middle East; we are sending our jobs and money overseas, that could have been used to help stimulate our own economy, not theirs.

Well, when we cannot drill our own oil, we have to get it from somewhere. I think we can all agree that without oil our economy will come to a grinding halt.

If China is to become a world superpower along with the U.S., it won't be entirely from their own actions that cause their increase in power; it will also be from our actions too, handing them our ability to have a true workforce.

Handing them our ability to have a true workforce? What does this even mean?

Aside from that, the trade deficit is meaningless. And which deficit are you even talking about? The merchandise deficit, the goods and service deficit, or the account deficit?

This distinction matters a lot as we are a service based economy. Further, what matters about the deficit is not just that there is a deficit, what matters is how the loans to make up for it are used. If the US uses the money to grow and expand the economy, then it is a good thing. If it is used to finance government deficits, then it will drag down consumption and be bad for us all.

Also, China accounts for only 5.7% of our trade, who cares if we have a deficit? Why are we not concerned with trade imbalances with Canada or Mexico? In fact, why are we not concerned with trade deficits between states, and individual persons? Either the trade imbalance matters or it doesn't, and if it does we should worry about it on an individual level too.
 
This is a somewhat bogus statement right off the bat. I do not agree. What it leads to is a specialization of resources that makes the US economy that much more productive.
I don't see where you got that. Can you give me examples of how the US is made more productive, and by what specializations? Even so, massive outsourcing leads to is less manufacturing jobs in the US, and more jobs in service industries. The US is now 80% in the service industries, and over half that is in consumer markets. It is an unstable economy. When Americans stop consuming, those consumer jobs diminish, creating a self perpetuating cycle.
Their exports will not "stop", export growth will perhaps stop, but as long as there is a demand for the good, it will get made, recession or not.
ANewStart did not say exports will "stop", he said "much of their exports will stop" Already this year, the actual volume of retail trade shrank about 2%. So, that much of exports stopped, if the mix of export vs. home products remained constant.
Handing them our ability to have a true workforce? What does this even mean?
He no doubt means the manufacturing workforce, which we have lost.
Aside from that, the trade deficit is meaningless. And which deficit are you even talking about? The merchandise deficit, the goods and service deficit, or the account deficit? This distinction matters a lot as we are a service based economy.
When people talk about the deficit they generally refer to the fiscal deficit. That is the only deficit that makes sense in this context.
Further, what matters about the deficit is not just that there is a deficit, what matters is how the loans to make up for it are used. If the US uses the money to grow and expand the economy, then it is a good thing.
The federal deficit has nothing to do with loans. The fed deficit is caused by the Federal Reserve selling bonds. Over half these bonds are sold to foreign countries. Bonds are used to pay for government spending. Of course some government spending does grow the economy, such as military purchases and subsidies, etc. The bonds supporting the bailouts are more for keeping the economy from collapsing rather than expanding.
If it is used to finance government deficits, then it will drag down consumption and be bad for us all.
This sentence makes no sense. What is the word "it" referring to? Neither "loans" nor "deficits" make any sense. I don't think you understand how the US economy works.
Also, China accounts for only 5.7% of our trade,
According to the US ITC, the trade balance with China is more like13.8%, but that is a minor issue.
who cares if we have a deficit? Why are we not concerned with trade imbalances with Canada or Mexico?In fact, why are we not concerned with trade deficits between states, and individual persons? Either the trade imbalance matters or it doesn't, and if it does we should worry about it on an individual level too.
What on earth are you talking about? State and individual deficits have nothing to do with the US deficit. Ever since the gold standard was completely eliminated, the US economy became deficit based. It is natural and not alarming.

What is alarming is that the deficit is now growing much faster than the GDP. We are currently paying 9% for the interest on the bonds that make up the deficit. This interest rate is exponentially growing, and it is faster than tax revenue growth. When the interest rate becomes a major part of the tax revenue, we are in deep trouble. It has been estimated by David Walker that around the year 2040, the interest on the bonds will be the major expenditure. I don't need to worry. I won't be alive. I don't have any kids either. Lowering taxes will accelerate the problem. Anyone who cares about the future of the kids today should be worried about the future of the deficit. They should be outraged.
 
It would appear that the US is having a rough ride with the Chinese at the moment..........

U.S. Treasury Secretary Henry Paulson, who led the U.S. delegation, described the talks as productive and said he was proud that the "Strategic Economic Dialogue" he had instituted had strengthened bilateral relations.

But there were tell-tale signs that the two sides had not seen eye-to-eye, with the United States worried that China might be losing the stomach to let its currency keep rising and China anxious over Washington's management of the U.S. economy.

In a closing statement, Paulson described the cabinet-level talks as "robust", while a senior Chinese official urged the United States not to neglect its biggest creditor as it strives to stabilise its banking system and revive growth.

On the basis that China holds the future of the US by the balls.........

But friction over exchange rate policy was not far from the surface after China's central bank startled markets this week by letting the yuan, also known as the renminbi (RMB), fall modestly against the dollar after engineering a steady 20.3 percent rise since July 2005.

Some economists read the central bank's action as a warning to Washington -- and to the Obama administration in particular -- not to press Beijing too hard on currency policy given the dire straits of many Chinese exporters.

http://www.javno.com/en/world/clanak.php?id=211331
 
It would appear that the US is having a rough ride with the Chinese at the moment..........

On the basis that China holds the future of the US by the balls.........

http://www.javno.com/en/world/clanak.php?id=211331

What does "robust talks" mean? Probably yelling at each other.

There is Yin Yang. Sure they have us by the balls, but they dare not let us fail because they have too much of their Sovereign Wealth Funds invested in US bonds. They want to keep one of their favorite consumers alive. ..... I hope.
 
What would happen if they started steadily dumping the $2 trillion they have into other currencies?

"if"? ...they probably will. A number of things could happen, but all of them would lead to a lower standard of living for Americans.

It is to their benefit to keep the yuan equivalent to the dollar so we will continue to buy their stuff. They are slacking off buying US treasury bonds and now prefer to invest in US stocks. If that trend happens, it will be harder for us to do deficit spending.
 
I don't see where you got that. Can you give me examples of how the US is made more productive, and by what specializations? Even so, massive outsourcing leads to is less manufacturing jobs in the US, and more jobs in service industries. The US is now 80% in the service industries, and over half that is in consumer markets. It is an unstable economy. When Americans stop consuming, those consumer jobs diminish, creating a self perpetuating cycle.

We became more productive by specializing in what we do best, the service industry. You could also argue that very advanced technology also is our specialization, but that can be up for debate.

ANewStart did not say exports will "stop", he said "much of their exports will stop" Already this year, the actual volume of retail trade shrank about 2%. So, that much of exports stopped, if the mix of export vs. home products remained constant.

What he said was "much of their exports will stop, causing a major decrease in the number of supplies to many major countries like the U.S." This statement is false. If we are willing to buy them they will make then, recession or not. Also, if China disappears tomorrow, someone else will take their place before to long to replace any loss of imports. Further, what they export to us has little value other than "we buy it." If volume shrinks 2% it is not that big of a blow, China is hardly our biggest trading partner anyway.

He no doubt means the manufacturing workforce, which we have lost.

I look at that as "shedding the inefficiency." We can still manufacture whatever we want in this country should we have to, but we don't have to, so why pay more for it? Simply because it says "made in the USA?"

When people talk about the deficit they generally refer to the fiscal deficit. That is the only deficit that makes sense in this context.

OK, and what does this tell? If we have an imbalance or not. Who cares if there is an imbalance?

The federal deficit has nothing to do with loans. The fed deficit is caused by the Federal Reserve selling bonds. Over half these bonds are sold to foreign countries. Bonds are used to pay for government spending. Of course some government spending does grow the economy, such as military purchases and subsidies, etc. The bonds supporting the bailouts are more for keeping the economy from collapsing rather than expanding.

I am aware how the Fed works, but I was talking about the overall trade imbalance, and your statement of "the only way we avoided a recession was to go into debt." So given your comment, I said that it does not matter that there is a need go into debt (deficit), what matters is how we use the loans (deficit spending etc..)

This sentence makes no sense. What is the word "it" referring to? Neither "loans" nor "deficits" make any sense. I don't think you understand how the US economy works.

"It" refers to the money we are taking out of the economy in the form of deficit spending or the loans we are taking from other countries to pay for our obscene spending.

According to the US ITC, the trade balance with China is more like13.8%, but that is a minor issue.

My figure was the size of our trading relationship with China, which is really not all that massive in the overall context. The imbalance in my mind is irrelevant.

What on earth are you talking about? State and individual deficits have nothing to do with the US deficit. Ever since the gold standard was completely eliminated, the US economy became deficit based. It is natural and not alarming.

I was referring to trade imbalances. If they matter in terms of US-China, then they should matter in terms of Texas-New York.

What is alarming is that the deficit is now growing much faster than the GDP. We are currently paying 9% for the interest on the bonds that make up the deficit. This interest rate is exponentially growing, and it is faster than tax revenue growth. When the interest rate becomes a major part of the tax revenue, we are in deep trouble. It has been estimated by David Walker that around the year 2040, the interest on the bonds will be the major expenditure. I don't need to worry. I won't be alive. I don't have any kids either. Lowering taxes will accelerate the problem. Anyone who cares about the future of the kids today should be worried about the future of the deficit. They should be outraged.

This does not matter in terms of trade imbalances... but if we can continue to grow the GDP at better rates, the debt becomes less of a problem.
 
It is to their benefit to keep the yuan equivalent to the dollar so we will continue to buy their stuff. They are slacking off buying US treasury bonds and now prefer to invest in US stocks. If that trend happens, it will be harder for us to do deficit spending.

I agree they must keep their currency undervalued to make their exports more appealing. That said, if they disappear I doubt the US has all that much trouble finding someone else to buy our bonds. India could buy bonds, many of our allies buy bonds as a trade off for protection. Losing China does not mean the end of deficit spending.
 
We became more productive by specializing in what we do best, the service industry. You could also argue that very advanced technology also is our specialization, but that can be up for debate.
Our productivity used to be supreme in manufacturing and innovation. Now you are saying we do service industry best. Unfortunately I have to agree with you. That seems to be all we have left. But it doesn't make sense to say that the service industry "makes the US that much more productive."
What he said was "much of their exports will stop, causing a major decrease in the number of supplies to many major countries like the U.S." This statement is false. If we are willing to buy them they will make then, recession or not. Also, if China disappears tomorrow, someone else will take their place before to long to replace any loss of imports. Further, what they export to us has little value other than "we buy it." If volume shrinks 2% it is not that big of a blow, China is hardly our biggest trading partner anyway.
No, it is not much of a decrease yet, but you used the word "stop" without any of his original qualification. "If we are willing to buy" is increasingly becoming the wrong phrase. It will be replaced by "If we are able to buy". I use "China" as a generic term for "foreign". Whether China is a major importer or not, is not the major issue. The problem is the balance of trade with whoever.
I look at that as "shedding the inefficiency." We can still manufacture whatever we want in this country should we have to, but we don't have to, so why pay more for it? Simply because it says "made in the USA?"
What you are really implying is "shedding" the middle class standard of living that we are used to. You are rather cavalier about gearing up manufacturing "should we have to". It takes several hundreds of millions of dollars to build a single semiconductor factory. We are rapidly losing technical expertise in manufacturing technology. It would be a very slow, and expensive hard climb to do that. Amortizing the manufacturing investment will only be possible with lots of venture capital with a long payback. Cash flow is always the first problem a new industry faces, and we don't have much of that anymore.

If significant manufacturing comes back to the US, what I think would really happen is that foreign manufactures will finance and build the factories here, like some of the Japanese auto companies have done in the South. US capitalism will turn into a sort of foreign capitalism on US soil. This will raise employment, but Americans will be working for foreign bosses. That might be one way of increasing productivity.
OK, and what does this tell? If we have an imbalance or not. Who cares if there is an imbalance? I am aware how the Fed works, but I was talking about the overall trade imbalance, and your statement of "the only way we avoided a recession was to go into debt." So given your comment, I said that it does not matter that there is a need go into debt (deficit), what matters is how we use the loans (deficit spending etc..)
You sure have an weird way of talking about the nature of US deficit spending. But I agree that as long as we wisely use the bailout money that deficit (and hopefully the interest that debt incurs) will eventually be remunerated, but a huge $9 or 10 Trillion deficit will still remain.

"It" refers to the money we are taking out of the economy in the form of deficit spending or the loans we are taking from other countries to pay for our obscene spending.
We are not taking money out of the economy! We are putting money into the economy. That is the nature of deficit spending!
I was referring to trade imbalances. If they matter in terms of US-China, then they should matter in terms of Texas-New York.
Maybe they do matter, but that is so totally irrelevant. I really don't know what point you are trying to make. The subject is the ramifications of cumulative $6 Trillion US trade imbalance with foreign countries and the $10 Trillion deficit.
This does not matter in terms of trade imbalances... but if we can continue to grow the GDP at better rates, the debt becomes less of a problem.
Interest on the deficit is currently 9% of our current tax revenue. If we balance the budget today, the GDP will have to grow 9% per year in order to pay just the interest. You think we can grow it to 9%? It has been 1.8% per capita for decades.

The trade imbalance is $2 Billion per day and our debt increases by 1.5 Billion a day to prop up the government. $6 Trillion wealth flowed out of the US in the last couple of decades via trade imbalance. That $6 Trillion is not available to increase American growth to offset the current $10 Trillion debt.
 
I agree they must keep their currency undervalued to make their exports more appealing. That said, if they disappear I doubt the US has all that much trouble finding someone else to buy our bonds. India could buy bonds, many of our allies buy bonds as a trade off for protection. Losing China does not mean the end of deficit spending.
I use "China" as a generic term. In the future we will have increasing trouble finding anyone to buy our bonds. Most foreign countries are losing confidence. They now prefer to invest (bailout sometimes?) in our companies.
 
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Our productivity used to be supreme in manufacturing and innovation. Now you are saying we do service industry best. Unfortunately I have to agree with you. That seems to be all we have left. But it doesn't make sense to say that the service industry "makes the US that much more productive."

We still remain very innovative in many sectors.

No, it is not much of a decrease yet, but you used the word "stop" without any of his original qualification. "If we are willing to buy" is increasingly becoming the wrong phrase. It will be replaced by "If we are able to buy". I use "China" as a generic term for "foreign". Whether China is a major importer or not, is not the major issue. The problem is the balance of trade with whoever.

I do not think many people see a trade imbalance with say Canada as a problem. Why is all the focus on China? I understand how you use it, but most people don't seem to do that.

What you are really implying is "shedding" the middle class standard of living that we are used to. You are rather cavalier about gearing up manufacturing "should we have to". It takes several hundreds of millions of dollars to build a single semiconductor factory. We are rapidly losing technical expertise in manufacturing technology. It would be a very slow, and expensive hard climb to do that. Amortizing the manufacturing investment will only be possible with lots of venture capital with a long payback. Cash flow is always the first problem a new industry faces, and we don't have much of that anymore.

Middle class standard of living? What does that even mean...

On top of that, the manufacturing industry in this country is not going to simply be gone. It will be scaled back perhaps, but if demand picks up, there is a rapid influx of money. It will not be a "new" industry that has to emerge.

If significant manufacturing comes back to the US, what I think would really happen is that foreign manufactures will finance and build the factories here, like some of the Japanese auto companies have done in the South. US capitalism will turn into a sort of foreign capitalism on US soil. This will raise employment, but Americans will be working for foreign bosses. That might be one way of increasing productivity.

You sure have an weird way of talking about the nature of US deficit spending. But I agree that as long as we wisely use the bailout money that deficit (and hopefully the interest that debt incurs) will eventually be remunerated, but a huge $9 or 10 Trillion deficit will still remain.

I agree the debt is large, I proposed a plan to start paying it back on this board, it was mostly ignored.

We are not taking money out of the economy! We are putting money into the economy. That is the nature of deficit spending!

Loans and deficit spending take money out of the economy short term. All of that must be paid back with interest. If we use the loans to fund some new social program, all we have done is hurt ourselves. However, it all comes back long term.

Maybe they do matter, but that is so totally irrelevant. I really don't know what point you are trying to make. The subject is the ramifications of cumulative $6 Trillion US trade imbalance with foreign countries and the $10 Trillion deficit.

I guess I just buy into Friedman's argument that a trade imbalance does not matter all that much. The imbalance, to me, simple means that consumers had an opportunity to purchase and enjoy more goods at lower prices; on the flip side, a trade surplus implied that a country was exporting goods its own citizens did not get to consume or enjoy, while paying high prices for the goods they actually received. Also, all the money that is sent overseas in terms of this imbalance eventually makes its way back to the United States in the form of investments.

Interest on the deficit is currently 9% of our current tax revenue. If we balance the budget today, the GDP will have to grow 9% per year in order to pay just the interest. You think we can grow it to 9%? It has been 1.8% per capita for decades.

Money paid overseas to our "lenders" typically comes back to the US in the form of investments. I do not see it as the US loses out on 9% a year in interest, but rather that 9% comes back in investment form.

The trade imbalance is $2 Billion per day and our debt increases by 1.5 Billion a day to prop up the government. $6 Trillion wealth flowed out of the US in the last couple of decades via trade imbalance. That $6 Trillion is not available to increase American growth to offset the current $10 Trillion debt.

All of that wealth comes back long term, so I guess I do not really see the issue.
 
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