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10 October 2005

USA (made in China)

Want to buy a bike in America? Chinese. Cadillac? Chinese parts. Wal-Mart alone imports $18bn worth

By Andrew Stephen

I started to investigate the possibility of buying a new DVD player just a few days ago. Readers with sharp memories will recall that I bought one only a few months ago, but that purchase turned out to be short-sighted. This time I had invited some Australian expatriate friends to my house to watch the DVD series of England winning the Ashes – an invitation I knew they would find hard to resist – but the DVD player I bought last spring played only American discs on American televisions.

So I did what most people in the US do these days when they want to make such a purchase – I went online, to look for a DVD player with the kind of international specifications that would baffle any assistant at a Circuit City or Best Buy store. In two minutes I found just what I was looking for – a multi-region, code-free Daewoo DVN8100 model, no less – that I was confident would provide at least one evening’s hilarious entertainment for my friends (and, as I smilingly told them, probably several).

What astonished me most of all, however, was not so much the ease of the transaction, but the price: this ultra-sophisticated machine cost just $17.60, noticeably less than the three Ashes DVDs themselves. The player arrived from a Florida-based company called Dakmart four days later and proceeded to play crystal-sharp DVD images. Then I looked at the back of the DVD player and saw a discreet but unmistakable label of the kind that you can see in just about every American home and office these days: in capital letters, “MADE IN CHINA”.

These three words are now far more ubiquitous in the US than in any other western nation, because the affluence of America and the economies of scale drive the retail costs of Chinese goods lower here than anywhere else. Want to buy a new bike? Eighty-five per cent of those sold in America are now made in China. Ride in an all-American Boeing 757, or a Cadillac or a Buick? Boeing and General Motors both routinely buy spare parts from China.

We all know about Peter Mandelson’s bra wars and how the lifting of restrictions on the export of Chinese textiles at the end of 2004 flooded Europe with Chinese clothes – but the sheer saturation of the US with cheap Chinese imports makes anything happening in Europe seem positively trivial. Chinese imports to the US have grown 1,600 per cent in the past 15 years; and in the first quarter of 2005 alone, imports of Chinese cotton trousers and cotton-knit tops soared by 1,500 and 1,250 per cent, respectively.

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To put all this into perspective, last year China had a trade surplus of $33bn with the rest of the world. If trade with the US was excluded from this, however, that would have turned into a deficit of $47bn. The US currently pays out six dollars to China for every one it gets back and, so far this year, its deficit with China is running 29 per cent above last year’s $162bn. Wal-Mart alone – America’s biggest company, with annual sales of $288bn – buys more than $18bn worth of Chinese-made goods each year. If it was a nation, Wal-Mart would be China’s eighth-largest trading partner, ahead of Australia, Russia and Canada.

Like Dakmart, Wal-Mart depends overwhelmingly on Chinese goods for its profits. It has 6,000 suppliers for the products it sells in its 1,258 stores and 1,866 superstores across the US, and 5,000 of them are Chinese. In an experiment last weekend, I asked a friend in Dallas to visit one of the city’s 20 branches of Wal-Mart (there are none in DC) to find what other Chinese-made Daewoo goods he could spot: he came across a hot and cold water dispenser with a built-in fridge for just $112.84.

The problem for Americans is that they both love and hate all this. Morgan Stanley, the investment banking firm, said recently that cheap Chinese imports have saved US consumers more than $600bn in the past decade. But, in such a ruthlessly competitive society, the avarice of these consumers inevitably harms fellow Americans and sometimes themselves, too. A proud American company called Huffy – originally started in 1892 by the inventors of the Davis sewing machine – was selling a million bikes at its peak. But by 1998, and under pressure from Wal-Mart, Huffy had been forced to close its factories first in Ohio (with the loss of 1,100 jobs there alone) and then in Missouri and Mississippi.

The result is that Americans still clamour to buy Huffy bikes through a company in Ohio called Huffy, but few know (and do they care, I wonder?) that the bikes are now made in the Baoan Bicycle Factory in Shenzhen by workers earning between 25 and 41 cents an hour. Or you can look at the human devastation in a small town such as Kannapolis, North Carolina, once known as the “City of Looms”. The flood of Chinese textiles led to the closure of its century-old Cannon Mills complex two years ago, with the loss of 4,800 jobs and virtually all the town centre. “When a hurricane hits, it takes away homes,” said Ray Moss, the mayor. “What happened here is a catastrophe that took away jobs and left [homes] people can’t pay for because they have no jobs.”

In a peculiarly American way, the country has brought these quandaries on itself. Its pattern in playing realpolitik games is familiar. When Iran was the enemy, for example, the US courted Saddam Hussein, and we know the rest. Back in the days of Richard Nixon the Soviet Union was the big threat, and so the US turned to China. Nixon went there in 1972, met an ailing Chairman Mao and resumed diplomatic relations. Under Jimmy Carter, the first Chinese wicker baskets trickled into America. Four years ago China formally became a member of the World Trade Organisation – and free trade and battle duly commenced.

Though it still finds those well-lit Wal-Mart shelves irresistible, America is at last waking up to the reality of China as a competing superpower. The Bush administration’s swagger over having the world’s biggest economy and military machine notwithstanding, Americans are constantly looking over their shoulders for the next threat to the American Dream. And saloon-bar wisdom these days is suddenly alert to China, its 1.3 billion population and growing might.

Representative Dana Rohrabacher of California, who once worked as a special assistant to Ronald Reagan, typifies this mood and says that China is a “Frankenstein monster”. (He is also mystified why there is so much anti-Americanism in the world.) It was humiliating for the country, too, when the Chinese made a predictably unsuccessful $18.5bn takeover bid this past summer for the US oil giant Unocal. “The Chinese are great economic and political rivals, not friendly competitors or allies in democracy,” explained Senator Ron Wyden, a Democrat from Oregon.

Thus Americans – the world’s greatest apostles of the free-market system – are contorting themselves into ideological knots explaining why they should not have to compete with the rest of the world in free markets. Boeing should not have to com- pete with the Airbus because it is subsidised by EU governments, and that is socialism and thus un-American and un-free (even though the WTO found at the end of last month that, in effect, the US subsidises Boeing to the tune of $750m of public funds every year). And the US should not have to compete with China because the Chinese don’t share American values and principles, do they?

We should not worry, though. President Bush is riding to the rescue and will visit Beijing next month to sort it out with Hu Jintao himself, mano a mano. Bush faced his first international crisis three months after he took office when a US reconnaissance plane collided with a Chinese fighter jet 60 miles off China, leading to the death of the fighter pilot and the unauthorised landing of the US plane on a Chinese airstrip. That was just two years after the US bombed Beijing’s embassy in Belgrade. The State Department began an intensive effort to improve relations with China and last year Colin Powell described them as “the best ever”.

But Powell has gone, and a year is a short time in the foreign policies of this administration. In May, it slapped a quota on Chinese textile imports and further trade talks with China broke down last month; Condoleezza Rice has already been to Beijing this year to try to smooth things out and Donald Rumsfeld will have another go later this month. The Pentagon is openly grumbling about Chinese military spending and the White House does not like the way China is cosying up to Burma, Venezuela, Sudan, Zimbabwe, Iran and that other US ennemi du jour, North Korea.

It’s all so complicated for a decent chap of values and principles such as George W Bush. But sheer goodness and virtue will surely prevail when Dubbya looks Hu in the eye. I mean, where else but America could you buy a multi-system DVD player for $17.60?