CHINA AND THE UNITED STATES

China is in a crossroad with its population and its agriculture production.  The United States history appears be used as an example for what is to come in China.  With the industrial revolution in the U.S. came the mechanization of farming. 

Prior to mechanism the form of U.S. farming consisted of small family farms, similar to family farms on father’s side, for generations, or larger farms with 20-30 farmhands like the farm owned by my great grandparents on my mother’s side, in Wasco Oregon.  On my Father’s side, like many mid-western farmers, they had 4 generations with 10-12 siblings in each.  This type of demographical phenomenon was the norm on the plains prior to the population flight to the large urban centers, as a result of mechanization during the late 20’s and early 30’s.  With this came large numbers of unskilled farmers over-running the large urban centers without work.

China’s one child policy instituted in the 1990’s, was a result of a forward-looking demographical and migratory pressures.  China is in the process of having big Agra overtaking the small family farms.  This situation was foreseen by the Chinese planners and have attempted to satisfy the teeming masses, with large scale construction projects with housing, shopping centers, and infrastructure projects, that are being constructed in realization of the future onslaught of the masses to the urban centers and off the small scale family farms and larger scale farms that required large quantities of manpower. 

This is the transformation that will take China from a manufacturing economy  to a service economy.  The recognition that the labor force is slowly declining and the need for large labor force with automation is also declining, the switch is to a service economy was recognized as a  requirement to maintain a robust economy.

China has switched to natural gas and electricity for their automobiles.  They are the largest producer of solar panels. They also plan 10-20 years ahead and the government attempts to provide for the future success of the country.   The population is aging and is losing their ability to garner low wages, due to the reduction of the labor surplus exploited in the past.  The rate of growth for China has been impressive.  The fuel for their economy is the accumulation of our trade deficits.

China’s economy has been driven by cheap labor and world trade, supplying the global supply chain with goods and components that have extensive labor content.  China has provided the U.S. with cheap goods since we opened up markets in the 60’s.  Our manufacturing sector could not compete with the labor surplus that existed at the time and global companies sent production offshore.

On my trip to China, I saw large scale complexes with high-rise residences surrounded with shops and schools and other amenities.  These complexes were empty and almost complete.  There were 6 to 8 high-rise apartments, each complex housing hundreds of families.  You could see in the distance other complexes being constructed with tower cranes doting the countryside.

The danger in our dependence on a single source for strategic goods, creates a very dangerous situation.  Then came the Covid19.  This disruption to the world supply chain will be a devastation to the world economy for years.  The economies of the world are in free fall and will be soon in a depression. Unemployment will be at levels not seen since the great depression.  No good news on the horizon.

Obama had a solution for this situation called the Trans Pacific Partnership or (TPP). TPP created a Pacific Rim countries trade partnership, that provided for a free trade and favored status and protected intellectual rights.  This agreement would have increased the ability of corporations to diversify their supply chains.  A single source for critical items is a single point failure in any industry.  China, due to its low labor costs, and now their investments in automation and infrastructure, have created the single point failure for any supply chain.  This situation may have been avoided if U.S. manufacturing was incentivized by the TPP that Trump voided with an executive order, as one of his first acts.  Was this a favor to President Xi Jinping?