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The Forum > General Discussion > Is the USA the emerging superpower - again?

Is the USA the emerging superpower - again?

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Here's the generally accepted script. The USA is in irreversible decline. China will supplant the USA as the new global hegemon.

The accepted script may be correct. But let's take a closer look at China.

In the 1970s China was a basket case with one great asset. It had a disciplined, industrious and, by poor country standards, well educated labour force willing to work for what was by Western standards a pittance. Two men, Zhou Enlai and Deng Xiaoping, had the vision to see that was enough. Zhou died in 1976 and it was left to Deng to turn vision into reality. In a very real sense we live in the world that Deng made.

Under Deng and his successors China turned itself into the world's manufacturing platform. Foreign companies, notably from Taiwan and Hong Kong, were encouraged to set up huge modern factories in China which assembled goods for export to the rest of the world.

As I pointed out in a previous post titled "China! China! China! China!....*", that model may be coming to the end of the road. From here on it gets harder. The Chinese leadership, recognising this, is pouring vast sums into R&D. Their stated aim is to add "Innovated in China" to "Made in China."

However this is an arena in which the USA has the advantages. It has an unparalleled network of well-funded national laboratories and universities. These act as a "brain magnet" drawing talented people from all over the world, not least from China. As a result, in size and overall quality the USA has finest scientific and engineering labour force in the world. Some countries may have better scientists or engineers in specific fields but no country has the breadth of talent that continues to thrive in the US.

I have no doubt China will emerge as a scientific superpower provided – and this is a huge proviso – the Communist part is prepared to loosen the reins of its control. I'm not yet convinced it will eclipse the US.

Comments?

*See: http://forum.onlineopinion.com.au/thread.asp?discussion=5101
Posted by stevenlmeyer, Saturday, 28 April 2012 6:53:45 PM
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Just to add a few more points which the 350 word limit did not permit:

(1) Rising manufacturing productivity means that labour costs are not as important as they once were. Thus China's low labour costs are getting less and less relevant compared to the costs associated with having your factory thousands of miles from your market. This is why I think China's current "business model" is coming to the end of the road.

(2) In any case if the Chinese want to enjoy rising living standards they need to move beyond providing low cost labour. Already Chinese labour costs are rising rapidly.

(3) Average labour costs in China are around $6 / hour compared to around $26 / hour in the USA. That sound like a huge gap until you realise that labour productivity in the USA is 3-4 times what it is in China. Factor in rising transport costs due to increased oil prices and the advantages of using China as a manufacturing platform are no longer so obvious for US companies.

(4) The political risk associated with doing business in China is also becoming more apparent. So is the loss of "agility" associated with having long supply lines.

(5) I do not expect a rapid turn around in a trend that has been going on for decades; but I do expect US "offshoring" to decline while "onshoring" increases.

(6) China will have to focus more on innovation and new products than simply being a low-cost source of labour. They will probably meet this challenge but it gets harder and growth will be slower. It probably also needs political reforms which authoritarian regimes find hard. Hard but not impossible. Taiwan and South Korea managed the transition from virtual dictatorship to democracy.

(7) For now the US still has the lead in technology and innovation. China, or any other country, will find it hard to match America's scientific and technological establishment. That, and not matching the American military, is the real challenge for China.
Posted by stevenlmeyer, Sunday, 29 April 2012 11:31:09 PM
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Steven I certainly hope you're right. However there are some strange things going on in manufacturing.

I've mentioned before, I was forced to go to Taiwan for the manufacture of some products. I'm sure they had the things manufactured in China, & with some plastic items, I'm sure they proved the tooling in Taiwan, with early production, then later moved production to China. The drop in quality between shipments was obvious.

However the thing I could never understand was the cost of brass items. I believe the brass was probably produced using our copper & zinc, which makes it even stranger.

I was getting a chrome plated item of 3 components, machined, chrome plated, assembled & supplied packed in individual boxes, with our printing, delivered into my store 30% cheaper than I could buy the brass feed stock in Oz.

I never bothered to try to find out why, I was too busy then, & I am not interested enough today, but it doesn't make sense. Someone is indulging in quite a rip off somewhere. I suppose labor cost comes into it, but there is not much labor in producing raw brass rod.

Do we sell our metals that much cheaper by the boat load, than by the truck load, or does government get it's fingers into the pie somewhere.

I do find it interesting that in the US the large volume of gas being "fracked" has brought the cost down dramatically, where in Oz it will/would do nothing for us. We will still have a parity price scheme, & will continue to pay through the nose for it, & for any power generated using it.
Posted by Hasbeen, Monday, 30 April 2012 3:25:09 AM
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Interesting story Hasbeen

I once did some work for a South African company that designed the nozzles used in irrigation equipment. Although the design was done in South Africa the manufacturing was outsourced to a Taiwanese company.

It turned out that in South Africa the cost of the metals used to manufacture the nozzles exceeded the landed cost in the USA of the finished product from Taiwan. The company would not have been able to compete had it attempted to manufacture in South Africa.

Interestingly FoxConn, the world's largest assembler of consumer electronics in China is a Taiwanese company. I guess it's Taiwanese companies that have really mastered the art of mass assembly.

FoxConn are, of course, not constrained to operate in China. They now run facilities in Mexico as well.

See for example:

Cisco signs over Mexico manufacturing facility to Foxconn

http://www.zdnet.com/blog/btl/cisco-signs-over-mexico-manufacturing-facility-to-foxconn/52610

My guess is that FoxConn wants to diversify away from China.

Which reinforces the point I want to make in this thread. The eclipse of the US by China is by no means a foregone conclusion as some people seem to think. It may happen. But it may not.
Posted by stevenlmeyer, Monday, 30 April 2012 7:57:26 AM
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There is another factor which I saw discussed on TV yesterday and it is
the demographic nature of China and the US.
The population in the US will be significantly younger than China's.
This of course is caused by continuing immigration into the US and
aging in China due to the one child policy.

China has an upcoming food problem with 300 million farmers moving to
the new cities that will have to be built.
Then of course there is the energy problem just to complicate it all.
Posted by Bazz, Monday, 30 April 2012 8:52:38 AM
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Hi Bazz

Yep demography is another issue facing China. As a pundit in the Economist magazine put it:

"Will they get old before they get rich?"

I think the rise of China will slow over the coming decade. I don't think they're going to implode or suffer some sort of catastrophe though given the inherent instability of authoritarian regimes that's always a possibility. But neither are they going to be the gorilla everyone seems to imagine.

It seems the era of American supremacy may last a bit longer.
Posted by stevenlmeyer, Monday, 30 April 2012 9:02:49 AM
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