Where Have All the Jobs Gone?

Charles Hugh Smith at OfTwoMinds.com describes why so many jobs have migrated to China and Asia. Sad but true.

Several of my informed friends say that a few corporations are moving jobs back to the US. Let's hope it is a trend.

The key dynamic to understanding trade with China is U.S. corporate profits. In broad brush, what happened was simple: U.S. global corporations had run out of profitable places to invest their capital in their home domestic market of the U.S. The technology boom had been underway since the early 1980s, and much of the low-hanging fruit of improved productivity had already been reaped.

In the big picture, the U.S. market was "mature"–everybody already had everything, and the only gains to be had were marginal, shaved off at the expense of competitors. So the marketers conjured up a new line of toothpaste and various gimmicks were added to vehicles, but growth in the U.S. was modest, as befits a mature consumer economy.

So how could corporations increase profits? By slashing production costs. If you can't sell 30% more every year, then how do you make 30% more profits? By cutting your production costs by 30%.

How do you do that? By moving production overseas, mostly to China. … profits for the companies in China which make the goods for Corporate America are slim–from 1% to 3%. The big profits flow not to China-based companies, but to the foreign firms which own the production facilities and sell the goods in advanced economies.

This is the fundamental dynamic of trade with China–it has enabled an explosion in U.S. corporate profits to unprecedented heights. If you think about it, it is absolutely staggering that 10% of the entire U.S. GDP ($13.5 trillion) is corporate profits.

The full story of the decline of manufacturing and industry in the U.S. is not complete without looking at the dominance of finance.The U.S. economy has been effectivelyfinancialized, meaning that Financial Elites have come to completely overshadow industry and manufacturing.

Financialization of the U.S. economy and the exploitation of trade with China are deeply related. Domestic industrial capitalism ran into the limits of overcapacity and saturated markets; additional capital investments reaped marginal gains in profits.

The "answer" was to financialize the U.S. economy with vast increases in credit, debt and leverage, enabling a hyper-consumerist economy built on a pyramid of debt and leverage. Industrial Capitalism shifted capital and production overseas for a "two-fer"–to skim unprecedented profits from lowering production costs and by expanding into newly opened economies in China, India and elsewhere.

Simply put: Finance took over America, and Industrial Capital moved overseas. Both profited immensely, and China gained an industrial sector paid for by overseas capital and 200 million jobs for its restive, ambitious populace.

Link: Trade and "Trade War" with China: Who Benefits?

Is an Empire that Borrows from its Rivals Doomed to Fail?

The United States is beholden to China, financially. The dirty secret is that our government keeps overspending by selling debt to China. But most people don't know about it. Perhaps we can't stand the truth!

Too many of our leaders would rather pull the wool over our eyes than try to fix the really big problems that threaten the future of the United States.

Bill Bonner explains "Why an Empire that Borrows from its Rivals is Doomed to Fail" at the Daily Reckoning. Excerpts below.

We’re still Number One, right?

Yes…in the sense that we can, in theory, kick any butt in the world. That is, if the Chinese let us. They’ve got so much of our money and so many of our bonds, if they decided to dump them, we’d be in one helluva fix. Because we don’t pay enough in taxes to fund our social programs and the Pentagon at the same time. We can’t afford it. So the nice Chinese lend us money.

But don’t worry. They’ve promised not to dump our bonds. And we’re sure they’ll honor that promise for as long as they want to.

As far as we know, no empire that had to borrow money from its rivals has ever lasted very long. Britain got itself in that position in WWI. It could no longer afford the carrying costs of the empire – including the huge cost of the war itself. So, it borrowed from the US.

Under the weight of growing social welfare programs and a shrinking empire, Britain’s economy sagged. Its old allies – France and the US – boomed in the post-war years. So did its old enemies – Japan and Germany. Soon, not only were its friends richer and more powerful…so were its adversaries.

Is that what we have to look forward to in America…a post-imperial decline, where our standard of living stagnates…our economy limps…and our place in the world frays and crumbles?

Yes. Most likely.

Why? Because the government is taking a larger and larger role in the economy. Because US social programs are too costly. Because we don’t have enough money to pay for them. Because not enough money has been invested in productive business. Because our military burden is too heavy…and difficult to escape. Because we have no savings. Because we will likely spend the next 10 years paying down private debt. Because the rest of the world is racing ahead. Because we are growing older. Because our leaders are corrupt and incompetent. And because the whole society becomes more zombified every day.

Talk about Energy Independence — But No Leadership

Gideon Rachman at the Financial Times provides some insight into how the U.S. became addicted to oil and how leaders avoid the tough love required to face the problem.

Link: Business Spectator – Oil’s slippery slope.

Mr McCain’s promise to eliminate American dependence on Middle Eastern oil is hardly original. Barack Obama and Hillary Clinton have made similar pledges. President Bush himself swore to end America’s “addiction to oil” a couple of years ago. President Richard Nixon made similar promises after the first oil shock of the 1970s. The reality is that things are moving in the opposite direction. In 1973 the US imported 33 per cent of its oil; today it imports about 60 per cent and this figure could rise to 70 per cent by 2020. America’s transport system is still completely dependent on oil.

American politicians have, so far, responded to this problem with a mixture of wishful thinking and anger. The calls for “energy independence” are all but universal. Money has been poured into the production of biofuels, which has helped push up food prices. But no leading politician is yet prepared to say that Americans may have to adjust their lifestyles to a world of permanently higher fuel prices.

Last week Senator Pete Domenici, a Republican, issued a plaintive appeal for “more oil and lower prices”. The Democrats are pressing for the US attorney-general to bring price collusion charges against members of the Organisation of the Petroleum Exporting Countries. But any such action significantly overrates America’s power over the world’s oil producers. Opec members could retaliate by selling some of their huge reserves of dollars – which would hit the dollar and US consumers very hard. The world’s main oil producers have no shortage of potential customers. More than 50 per cent of Saudi oil is now exported to Asia.

Competition for the world’s oil supplies is intensifying. Chinese oil consumption doubled between 1994 and 2003 and will have doubled again by 2010. China’s foray into Africa is largely driven by its own search for “energy security”. The International Energy Agency predicts that in 2010 China will become the world’s largest consumer of energy. The IEA also thinks that the world’s energy needs will be 50 per cent higher in 2030 than they are today – and that we are going to become more, not less, reliant on fossil fuels.

This seems all too plausible. At present there are about 10 cars in China for every 1,000 people; there are 480 cars per 1,000 people in the US. But by 2015, China could be the world’s largest market for new cars.

While western politicians routinely worry about globalisation, they have yet to focus on a more plausible threat. It is not the outsourcing of well-paid jobs; or the inflow of cheap goods: it is the globalisation of western patterns of consumption. If the Chinese and Indians eventually eat and drive like Americans and Europeans, the current inflation in fuel and food prices could be just the beginning. The environmental implications are also obvious – and alarming.

So although the search for energy security is now central to American foreign policy, as it is for both the European Union and the main Asian powers, in the long run there is no real foreign policy fix for the problem. A future dominated by conflict over scarce oil resources – or truckling to oil-rich dictators – is not attractive.

The only plausible routes to “energy security” lie at home in the US – in the development of new technologies and in a change of lifestyles. Americans may have to drive their cars less. But it will be a brave presidential candidate who says that.

Organic Food from China: Widespread Fraud

Buy your organic food from local sources whenever you can. Why? Read below.

Link: Organic, With Pesticides, BusinessWeek

…for years now, Chinese farmers have fed soaring global demand for organic foods. China’s organic exports totaled $350 million in 2005 (the most recent data available)—up from $150 million the previous year—according to China’s largest organic food certification agency. The country now represents 5% of global trade in such products, up to this level today from 1.2% in 2004. And that share is bound to grow as more land is converted to chemical-free farming. China now ranks third worldwide in organic farmland, after Australia and Argentina, up from 45th in 2000.

Organic produce from China isn’t turning up at supermarkets stateside just yet. Organic vegetables and fruits don’t travel well, so most of China’s organic produce is shipped to closer markets such as Japan, Hong Kong, and Taiwan. But organic soybeans, rice, and other grains, along with frozen vegetables and fruit concentrate from China are all making their way into processed organic foods that wind up on store shelves in the U.S., food brokers say. U.S. government agencies don’t collect data on the value or country of origin of organic food imports.

In light of the recent toothpaste and medicine scandals, Americans might rightly wonder what passes for organic in China. While falsely labeled organic foods are a problem all over the world, in China the situation is murkier than just about anywhere. Not only are there two rival clean-food standards, Green Food and Organic Food, backed by different government ministries, there also 21 separate agencies that claim the right to certify food as organic.

Even some global heavyweights have been duped. Wal-Mart (WMT) began several years ago procuring organic produce from a large-scale "organic" farm near Beijing to sell in Supercenter branches around China. Last year, Wal-Mart had to pull the produce from its Chinese stores after a surprise inspection revealed that the supplier was selling vegetables treated with pesticides.

Still, some unscrupulous companies in China clearly have tried to con their way into the U.S. market. Haobao Certified Organic Farm cultivates vegetables and raises chicken, cows, and sheep on a small farm in Yunnan province. OFDC-certified Haobao supplies the Parkson and Trust-Mart supermarket chains in Kunming with organic vegetables and recently signed on to supply Wal-Mart supercenters.

Founder Ming Yi says he was once approached by a farm in northeastern China that exports vegetables to the U.S. under the Ministry of Agriculture-backed Green Food standard, which is less stringent than organic. The outfit wanted to buy 10 kilos of Haobao’s produce and submit it to the OFDC for inspection as if it were its own.

What’s in our Food?

A recent article in InvestorsInsight : What We Now Know by Shannara Johnson focused on food imported from China. If the honeybees in our country continue dying, we may become more dependent on imported food. Warning: Don’t read the excerpts below if you have a weak stomach or don’t know where your food comes from.

Link: InvestorsInsight : What We Now Know

…due to insufficient pollination of certain crops and vegetables, the U.S. might become more dependent on food imports from foreign countries, among them China.

According to the USDA Economic Research Service, exports from China to the United States already more than doubled from $1 billion in 2002 to almost $2.3 billion in 2006. Within the last decade, China has become the third-largest exporter of food–by value–to the U.S., shipping nearly five times as much as it did in 1996. The food categories showing the biggest growth are beverages, fish, nuts, fresh fruits and vegetables.

To us, that seems reason for concern, given the abysmal track record in food safety of the Chinese. Case in point: the latest scandal involving pet food containing tainted wheat gluten from China.

The culprit was melamine, a chemical made from coal, that reportedly led to severe illness in thousands of American pets. After the melamine incident spurred frantic investigations, the New York Times now claims that the contamination with that substance was actually no accident, but "business as usual" in China.

The Chinese seem to like cutting corners when it comes to food production… which makes us wonder if this practice may, at least partially, be responsible for China’s "everyday low prices" no other country can compete with.

In the same year, there was a public outcry in Japan when it turned out that part of the 653 tons of soy sauce imported from China in 2003 had been made not from soybeans, but from human hair.

"Human hair makes an alternative to soybeans because it contains the amino acids that give the sauce its flavor," stated the Japanese Mainichi Daily News matter-of-factly. "Chinese soy sauce manufacturers say they want to continue making human hair sauce because it’s much cheaper than using soybeans. But outrage caused the Chinese government to ban the process, although many unscrupulous soy makers continue prowling barbershops for their economic alternative."

In 2005, the Shanghai Star reported that "a survey conducted in the Shanghai local food market […] found that cuttlefish were soaked in Chinese calligraphy ink to improve coloring, eels were fed contraceptive pills to make them grow long and slim and big fish were stuffed with small dead fish to make them heavier and bigger."

Well, that was in China and Japan, you may say, how does that concern us? After all, the U.S. does have strict regulations for food imports, doesn’t it?

While it is true that U.S. food regulations are in place, their reinforcement is another matter entirely. The FDA is woefully understaffed, with only about 1,750 food inspectors at ports and domestic food-production plants.

Which doesn’t bode well for foreign imports–and the risk is only getting greater. For example, after reading the following, you might want to scrape chicken and shrimp off your menu.

Currently, the U.S. government is working on a new proposal that would allow chickens raised, slaughtered and cooked in China to be sold in the United States.

In China, livestock are often fed antibiotics banned by other countries to maximize output, states a May 9 article in the Boston Globe, and for economic reasons, many farmers raise both chicken and shrimp.

While U.S. poultry farms are mostly huge, standardized businesses, in China, "there are hundreds of thousands of these little farms," Michael Doyle, director of the Center for Food Safety at the University of Georgia, told the Globe. "They have small ponds. And over the ponds […] they’ll have chicken cages. It might be like 20,000 chickens in cages. The chicken feces is what feeds the shrimp."

The result: "The U.S. Department of Agriculture has found that up to 10 percent of shrimp imported from China contains salmonella […]. Even more worrisome are shrimp imported from China that contain antibiotics that no amount of cooking can neutralize."

By the way, unlike seafood, under current U.S. regulations store labels are not required to indicate the country of origin for poultry–so we’ll literally never know where our next meal comes from.