Thoughts of an American Centrist

Monday, May 02, 2005

The Quiet Giant

Newsweek's Fareed Zakaria has a wonderfully insightful piece about China's growing eminence on the global stage. If you have the time, read the whole thing, and think about it.

The implications almost tempt me to take an isolationist standpoint. Yes, yes, economic isolationism is backwards and a sure way to put America on the path to insignificance, but remember the days when cars were all made in Detroit, tee-shirts in Alabama, steel in Pennsylvania, and oil in Texas? Wasn't that nice? Ahhh.... oh well.

One question that I have on my mind is whether or not China's eventual rise to economic equality with the United States is inevitable. I would argue "no," simply because the bulk of China's new found economic heft is due to its surging manufacturing sector. The reason China is miles ahead of other countries in manufacturing is the predominance of cheap labor. People willing to work for next to nothing combined with enormous profits due to the high demand for cheap exports has resulted in an economic divide so wide as to make the United States look like the more Communist state. Unfortunately for the Chinese business interests, utra-cheap labor is not a commodity of indefinite end.

A trifecta of factors - increasing overall wealth of the country, growing international scrutiny, and the ebbing influence of the central government - will cause both an internal and external demand for better working conditions and higher wages for the country's manufacturing workers. While this will not kill the industry completely, much of the new found market share will inevitably shift to other growing nations such as Thailand, Vietnam, and Indonesia. This will slow the rise of China's economy. How the country's business and political leaders deal with that loss will be the ultimate variable in determining how far China will be able to climb in the long term.

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