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Made in China - the Effects of Outsourcing

Discussion in 'Business & Economics' started by ANewStart, Dec 6, 2008.

  1. ANewStart

    ANewStart New Member

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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.
     
  2. Lagboltz

    Lagboltz Well-Known Member

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    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!
    [​IMG]
    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.
     
  3. n0spam4me

    n0spam4me Member

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    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!
     
  4. The Scotsman

    The Scotsman Well-Known Member

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    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!
     
  5. BigRob

    BigRob Well-Known Member

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    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.

    What does image have to do with globalization?

    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.

    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.

    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.
     
  6. Lagboltz

    Lagboltz Well-Known Member

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    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.
    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.
    He no doubt means the manufacturing workforce, which we have lost.
    When people talk about the deficit they generally refer to the fiscal deficit. That is the only deficit that makes sense in this context.
    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.
    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.
    According to the US ITC, the trade balance with China is more like13.8%, but that is a minor issue.
    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.
     
  7. The Scotsman

    The Scotsman Well-Known Member

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    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
     
  8. Lagboltz

    Lagboltz Well-Known Member

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    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.
     
  9. The Scotsman

    The Scotsman Well-Known Member

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    What would happen if they started steadily dumping the $2 trillion they have into other currencies?
     
  10. Lagboltz

    Lagboltz Well-Known Member

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    "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.
     
  11. BigRob

    BigRob Well-Known Member

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    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.

    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.

    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?"

    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..)

    "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.

    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.

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

    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.
     
  12. BigRob

    BigRob Well-Known Member

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    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.
     
  13. Lagboltz

    Lagboltz Well-Known Member

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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."
    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.
    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.
    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.

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

    Lagboltz Well-Known Member

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    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.
     
  15. BigRob

    BigRob Well-Known Member

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    We still remain very innovative in many sectors.

    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.

    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.

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

    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.

    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.

    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.

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