Chinese hold great stake in American market

Jan. 1, 2020
More and more "American" products are manufactured in China, a country which simultaneously holds $1 trillion in American bonds and a great power over the marketplace.
Larry Silvey China trade Alapel button I saw recently sums up one of our major economic problems. It has a picture of the American flag on it and right underneath is the killer phrase, "Made in China."

We Americans go about our business and personal lives with little thought when it comes to our attitude toward China. "Everything's made in China" has become a joke that most people don't question. They accept that's the way things are and shop for low prices at Wal-Mart where more than 70 percent of its products are made in China. The remainder comes from many other countries, including the United States. For the most part the products themselves are American in name only because most of them are manufactured in China.

Something is really out of whack here and nobody seems that concerned. It isn't bothering the Obama administration any more than it did the last two administrations. Even if we give all of these administrations the benefit of the doubt, their approach to economics has been tantamount to how a bad mechanic tries to repair a car. Change the water pump and if that doesn't solve the problem, replace the radiator. Nope, must be the thermostat. And so on.

Consider a few more facts from about Wal-Mart that speaks to the larger trade problem we have with China: 1) Annually, the company purchases $18 billion in goods from China; 2) it is responsible for about one-tenth of the U.S. trade deficit with China; and 3) if Wal-Mart were an individual economy, it would rank as China's eighth-biggest trading partner, ahead of Russia, Australia and Canada.

At the heart of the matter is $1 trillion in American bonds China is holding, according to the Washington Post. While we may not be showing concern, the Chinese are extremely worried, especially in light of how fallible we have shown our financial system to be. If the Chinese get too nervous, they just might take some drastic actions. One of two things could happen the Post says: 1) the Chinese could stop buying our bonds and 2) they could stage a sell-off of the bonds they hold. Either or both of these actions could drive up the cost of borrowing for the U.S government, as well as escalate mortgage and interest rates for Americans.

It is unlikely the Chinese will take such actions, because the value of the bonds they hold would be deflated. Still, the threat that they might do this holds the U.S. economy in check to a large degree. Our dependence on China puts us in the position of not being able to do anything about how the Chinese manipulate their currency, the yuan, which enables them to price their products more cheaply. This, of course, means American companies are forced to manufacture their products in China or some other low-cost country. Ultimately, as long as this is the case, any perceived economic rebound would be a false one. How we climb this Great Trade Wall remains to be seen.

Larry Silvey is a 26-year veteran of the automotive aftermarket.

LARRY SILVEY Editor-in-Chief/Group Editorial Director