Thursday, August 12, 2010

The Effects of a Changing Chinese Labor Market

I realize that my posts to this blog tend to be focused on the merits of free trade.  I've spent time discussing price ceilings and floors, and the disincentives produced by trade quotas, tariffs, and price gouging laws.  However, it is an idea that many Americans just don't seem to grasp, or they choose not to, or are even coaxed into ignoring the facts by political pundits and opinion makers promoting their agendas. 

With that said, we are beginning to see how the growth of China is reversing the global trade dynamic.  We already benefit from cheap manufactured goods, but I believe that the world is on the verge seeing China's growth bear a different kind of fruit for the rest of us.  This sentiment is supported by an article in the July 29, 2010 issue of The Economist magazine.  The cover article explores The Rising Power of China's Workers

The article, at once, reveals that China's working class is pressing for better conditions, higher wages, and better benefits, while reminding Americans of our own history.  It was only a century ago that American workers were fighting for the same goals.  We reap the benefits of the struggles of our ancestors.  We are able to enjoy a high standard of living, one that allows us to purchase inexpensive manufactured foods produced in emerging markets.

But, it is our penchant for a good deal that is allowing those Chinese workers to fight for rights of their own.  What are the inevitable results?  With higher wages, Chinese-made products will become more expensive.  Traders will look for alternatives and domestic producers will seize a new opportunity to compete.  Chinese workers will use their deeper pockets to purchase products that might have been previously unattainable.  That money we spent on cheap Chinese goods will begin to make its way back to us.  

Now, conservative political leaders, and supporters of American manufacturers will continue to argue that "Buy American" is the best policy.  While it is true that type of policy can have immediate positive impact on a failing economy, the long run consequences are too much to bear.


  1. I agree. I work in China for almost twelve years now as Director of Institute of Government at University of Georgia. My program has trained over 1200 Chinese civil servants in these many years. Now the class discussions are about rising wages, pursuit of middle class living standards, and the opportunity to buy "US made goods"! As I tell people when asked about China...the genie is out of the bottle! China is a vast experiment in consumerism, capitalism, and market socialism. How the US responds to the changes in Chinese markets, and consumers and workers is critical to both our economic futures.

  2. Thanks for the comment. Always good to hear support direct from the horse's mouth.